Consolidated Annual Activity Report

Transcription

1 Consolidated Annual Activity Report Financial year: 2016 The EIT Making Innovation Happen European Institute of Innovation and Technology (EIT) Budapest 15 June The EIT is a body of the European Union 5

2 Foreword from the EIT Interim Director The Year in Brief The EIT left behind another successful year in 2016 with hard work and challenges but even more importantly positive results and improvements has been a year in which the EIT Community has become stronger with EIT Food joining the existing five Knowledge and Innovation Communities (KICs) with fostered relations with key stakeholders and with a stabilised EIT Headquarters. We can already see today that the EIT is delivering tangible results based on the high ambition for which the Institute was set up - to increase growth and competiveness in Europe. A prime indicator for the emerging success of the EIT is Forbes that has chosen 18 EIT Community members in their annual Forbes 30 under 30 list. We have succeeded in creating a vibrant innovation community with over 800 partners from business, education and research expanding all over Europe. In this sense, the EIT is creating concrete impact thanks to its innovative, flexible and experimental nature. In 2016, it became evident that high level messages from our stakeholders fully reflect the perspectives and ambition of the EIT to further foster innovation and work towards reinforcing the EIT s education activities, increasing KICs transparency, increasing visibility as well as enhancing our regional outreach activities. The EIT hosted several high-level stakeholders in 2016, in particular Commissioner Navracsics. His insights and those of his High Level Advisory Group further enhanced the good collaboration and reinforced our common mission to enhance the EIT s functioning and to make innovation happen across Europe and beyond. Talking of challenges in 2016, the European Court of Auditors Special Report on the EIT quickly springs to mind. I am pleased to report that we have already implemented more than half of the actions stemming from the recommendations of the report, thereby simplifying operations and increasing the focus on results and impact. This report served as an opportunity to make the necessary changes at the EIT, KICs and our processes to increase impact. The financial sustainability of KICs is a unique ambition of the EIT-KIC model and it is one of the most challenging aspects of the EIT s mission. While this was a distant objective for KICs in the past, they have now made this ambitious and unique goal on of their main strategic objectives. The EIT has guided KICs towards on this road and we can see an increasing level of revenues generated by KICs as a result. Furthermore, we have taken first steps towards creating the EIT Growth & Impact Fund that will provide funding to invest into early stage and scale-up development of innovative start-ups from KICs pipeline and beyond. Our continuous efforts towards making the EIT more visible are paying off. In 2016, we organised our annual innovation conference (INNOVEIT), made first steps towards setting up the EIT House in Brussels and organised awareness days in Members States and beyond. Numerous other events organised by the EIT Community, including the EIT Alumni events, attracted high interest on the EIT, demonstrated also by the significant increase in the positive articles on the EIT Community and followers on social media followers. If this trend continues we will see the EIT as the flagship institute that is a key element of the EU innovation landscape. Stability of the EIT as an organisation is at the centre of the commitment of the EIT Management. In 2016, we managed to reduce significantly the staff turnover and the number of vacant posts. The positive results of the staff engagement survey completed in December 2016 confirm that we have made EIT a challenging and rewarding place to work. The success of the year 2016 could not have happened without the continued great efforts of the EIT stakeholders and staff whose commitment and valuable contributions are essential in shaping the EIT into a fully-fledged and effective innovation institute at the service of Europe. Martin Kern Interim Director of the European Institute of Innovation and Technology 6

3 Contents INTRODUCTION... 9 Executive Summary PART I ACHIEVEMENTS OF THE YEAR Incentivising Growth, Impact and Sustainability through the EIT Consolidating, Fostering Growth and Impact of the KICs Creating new KICs Enhancing the EIT s impact The EIT s next Strategic Innovation Agenda (SIA) Fostering and Attracting Talent Enhancing Stakeholder Engagement New Delivery Mechanisms and Results-oriented Monitoring EIT-KIC Relations Simplification Monitoring, Impact Analysis and Evaluation Horizontal activities Strategy: Co-ordination and implementation Internal Communication and work environment Administrative support Internal Audit Capability PART II MANAGEMENT EIT Governing Board Major Developments Budgetary and Financial Management Human Resources (HR) Management Assessment by Management Assessment of audit results during Internal Audit Service (IAS) Internal Audit Capability (IAC) European Court of Auditors (ECA) Follow up of IAC recommendations and action plans for IAC audits Follow up of observations from the Discharge authority

4 PART III ASSESSMENT OF THE EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEMS Risk management Compliance and effectiveness of Internal Control Standards (ICS) PART IV MANAGEMENT ASSURANCE Review of the elements supporting assurance Overall conclusion on assurance DECLARATION OF ASSURANCE ANNEXES Annex I: Validated EIT core KPIs (Grant Agreements 2015) Annex II: Statistics on financial management Annex III: Organisational chart in Annex IV: Establishment Plan and additional information on Human Resources management Annex V: Human and Financial resources by activity Annex VI: Specific annexes related to part II Annex VII: Specific annexes related to part III Annex VIII: Final annual accounts

5 INTRODUCTION This consolidated annual activity report provides an overview of the activities and achievements of the European Institute of Innovation and Technology (EIT) in 2016 and has been established based on the guidelines of the EU Agencies Performance Development Network. The EIT s Annual Activity Report 2016 is a report of the EIT Interim Director. It is a key component of the strategic planning and programming cycle: it is the basis on which the EIT Interim Director takes its responsibility for the management of resources and the achievement of objectives. It also allows the EIT Interim Director to decide on the necessary measures to address any potential management and control weaknesses identified. It is in compliance with Article 47 of the EIT Financial Regulation, as adopted by the EIT Governing Board on 27 December The Annual Activity Report 2016 comprises four main parts and annexes as follows. Part I: Achievements of the financial year Mirroring the structure of the Annual Work Programme of the EIT for the year of 2016, Part I provides information on achievements of objectives set in the annual work programme. This section also includes references to progress against Key Performance Indicators (KPIs) and targets. Part II: Management. This section provides information on the functioning of the EIT Governing Board. It also includes major internal and external developments which had an impact on the EIT during the reporting year as well as information on budgetary and financial management, Human Resources management, assessment by the EIT management and also assessment of audit results during 2016, along with the follow-up of recommendations and action plans resulting from audits. It also includes components on the follow-up of observations from the Discharge authority. Part III: Assessment of the effectiveness of the internal control systems. The report details in Part III the most important areas of risks associated with the EIT s operation as well as compliance with and effectiveness of the Internal Control Standards (ICS). Part IV: Management assurance. The report concludes in Part IV with a declaration of assurance in which the EIT Interim Director, in his role as Authorising Officer, takes responsibility for the legality and regularity of all financial transactions. In the annexes, the report provides statistics and information on the EIT core KPIs, financial management, organisational chart, establishment plan, Human and Financial resources used by activity, the EIT s final annual accounts and further specific annexes related to Part II and Part III of the report. The EIT Annual Activity Report is a public document and is available on the EIT website. 9

6 The EIT in brief The EIT s mission is to contribute to sustainable European economic growth and competitiveness by reinforcing the innovation capacity of the Member States and the European Union. It does this by promoting and integrating higher education, research and innovation of the highest standards. The EIT achieves its mission by fully integrating all three sides of the knowledge triangle, i.e. higher education, research and business, in Knowledge and Innovation Communities (KICs). By bringing together leading organisations from these dimensions to cooperate in the KICs, the EIT is able to promote innovation in Europe. Underlying all of the EIT s activities is the aim of encouraging and facilitating approaches favourable to entrepreneurship-driven innovation being able to turn major societal challenges into future economic opportunities to create economic growth and skilled jobs. The EIT contributes to Europe 2020, the Innovation Union, Horizon 2020 and the European Commission s objectives by integrating the knowledge triangle. This integration takes place primarily in the Knowledge and Innovation Communities (KICs) that bring together excellent organisations to tackle societal challenges on a long-term basis. Based on existing European excellence, the KICs continue to build upon and create new ecosystems tackling the fragmentation and duplication of efforts across borders to generate critical mass, enhance and strengthen collaboration, optimise the use of human, financial and physical resources, and attract talented individuals from all over the world. To date, the EIT has established a total of six KICs: EIT Climate-KIC, EIT Digital and EIT InnoEnergy were designated in 2010 and are fully operational and deliver outputs and results as measured by the EIT s core KPIs. EIT Health and EIT Raw Materials were designated in December 2014 and completed their first full year of operations in EIT Food was selected and designated by the EIT Governing Board in November 2016 and will complete their start-up year in

7 Executive Summary Highlights of the year The innovative nature of the EIT and its emerging results indicate a strong potential for the EIT to make a major contribution though its pan-european innovation systems to address major societal challenges. In 2016, the EIT saw its first three Innovation Communities (EIT InnoEnergy, EIT Climate-KIC and EIT Digital) reach full maturity and deliver an increasing number of innovative products, services and skilled entrepreneurial talents from its education programmes. We have also seen our second wave of Innovation Communities (EIT Health and EIT Raw Materials) establish their innovation ecosystems in their first year of activities. Moreover, a new Innovation Community (EIT Food) was selected. Over 800 partners from business, research and education now form the EIT Community and together, we are Europe s largest innovation network that makes a significant contribution to Europe s competitiveness, growth and job creation, bringing EU level value added to the European innovation landscape. Concrete highlights of activities performed in 2016 were: The 2016 Call for KIC proposals in the themes Food4Future and Added-value Manufacturing resulted in the designation of a new Innovation Community, EIT Food, in November 2016, increasing the number of established Innovation Communities to six. No Innovation Community was designated in the Added-value Manufacturing theme but the EIT Governing Board decided, after detailed and careful analysis, to re-launch the call for proposals in this thematic area in 2018 as no proposal was received that met the overarching excellence criteria. The EIT organised a successful edition of INNOVEIT, its annual Innovation Forum, attended by Commissioners Navracsics and Moedas, with successful EIT award winners, inspiring sessions, a tour of EIT Community innovations and a strong media interest. More than 350 participants from across Europe and beyond, business leaders, research and higher education experts, policy and decision-makers, media and EIT Alumni came together to discuss opportunities for collaboration during the EIT Stakeholder Forum and celebrated the achievements of EIT Community innovators and bit.ly/eitawards2016. entrepreneurs during the EIT Awards. The Member State Configuration meeting provided the opportunity for a structured dialogue between the EIT management and the five Innovation Communities management and the 11

8 representatives of 18 countries. An analysis of the results of the feedback questionnaire was carried out and 94% of responding participants indicated that INNOVEIT 2016 was an informative and inspiring conference. In 2016, the EIT Regional Innovation Scheme (EIT RIS) was implemented as an important element of the EIT Community s outreach strategy, operationalised through dedicated budget lines of the Innovation Communities and financed from grants earmarked by the EIT for this purpose. The EIT RIS succeeded in involving stakeholders from 16 additional European countries that were not previously engaged in EIT activities. The substantial increase in the values of the EIT core Key Performance Indicators (presented in Annex I of this report) confirms that the EIT Community is delivering tangible results towards achieving its ambitious objectives. Furthermore, the EIT in a cooperation with its Innovation Communities has developed a new set of 11 new results-oriented core KPIs to better address the EIT intervention and the KICs activities. The Education Review has confirmed that the most added value occurs when programmes link the Education Pillar with the Innovation Pillar and the Business Creation Pillar, creating new forms of learning experiences for students. Finally, the EIT continued to exploit synergies and complementarities with priority stakeholders, including EU and other funding institutions in As a result, the EIT signed a Memorandum of Understanding, including an action plan, with the European Commission s Joint Research Centre (JRC) and an open call on under the Copernicus Programme was launched with KICs as eligible beneficiaries. The European Court of Auditors released its Special Report on the EIT covering the period. The audit confirmed the relevance of the EIT model to foster innovation and brought useful recommendations that can help the EIT to further increase efficiency, effectiveness and impact. The EIT developed an action plan to implement the recommendations together with the Commission and KICs. As of today, we have already implemented more than half of the actions stemming from the recommendations of the report, thereby simplifying operations and increasing the focus on results and impact. The EIT and its EIT Governing Board had the pleasure of welcoming Commissioner Navracsics and his High-level Advisory Group at the occasion of the presentation of their final report. Based on initial reflections by the EIT on how to further enhance innovation capacities in Europe based on the experience and insights gained by EIT and its Innovation Communities, the EIT took active part in strategic discussions with stakeholders in 2016 with a focus on its future strategy. Since the EIT Governing Board s main priority for 2017 is the development of the EIT s Strategic Innovation Agenda (SIA) for the post-2020 period, preparatory work started already in the second half of The SIA will cover the EIT s seven-year strategy, defining the priority fields and strategic objectives for the EIT. It will include an assessment of the EIT s socio-economic impact and capacity to generate the best innovation added-value; an analysis of potential and appropriate synergies and an estimate of financial needs and sources and an indicative financial plan. In the context of the strategy development, the EIT s future vision, mission and intervention logic taking into account the added value and impact the EIT can offer will be assessed and further defined. Having established a strong pan- 12

9 European innovation system with 30 innovation hubs and over 800 partners, the EIT is in a strong position to raise its ambition and build on the platform and network it has created and which is now delivering tangible results. The EIT launched a new initiative, the EIT Growth and Impact Fund, which has the potential to complement the EIT activities and increase their scale and impact. A first feasibility study was conducted. In this context, the Commission undertook to investigate the possibility of scaling up the activities of the EIT to promote entrepreneurship, management and innovation skills in its Communication of 22 November 2016 on the Startup and Scale-up Initiative. The 2016 Grant Agreements with Innovation Communities based on their Business Plan were concluded with a total allocation of EUR 275 million and pre-financing payments were made in amount of EUR 170 million, the highest ever for the EIT. The grant agreements were signed under the new Framework Partnership Agreements which were concluded with the five Innovation Communities in February 2016 ensuring full compliance with the Horizon 2020 legal framework while also maintaining EIT-specific features. In 2016, the EIT reengineered its programming and grant allocation process, which resulted in the finalisation of the grants in December 2016 and subsequently their timely signature in early 2017 of specific grant agreements with the five established Innovation Communities committing a total of EUR 320 million for the implementation of their innovation boosting activities. Crucial work started in 2016 concerning the future of the EIT including the independent external evaluation of the EIT led by the European Commission. Its purpose is to assess the EIT's work as identified in the EIT Regulation and Horizon 2020 Regulation, and in particular to examine how the EIT fulfils its mission. In 2016, the composition of the EIT Governing Board significantly changed due to expiring terms of office that resulted in the appointment of five new EIT Governing Board members from the fields of business and academia. With the appointment of the five EIT Governing Board Members the EIT Governing Board has again reached its full size, 12 appointed Governing Board Member in November

10 In order to further improve the awareness, visibility and reputation of the EIT Community towards strategic stakeholders in Brussels, the EIT started to establish an EIT House in Brussels. The official inauguration of the EIT House is expected to take place in September The EIT further fostered the direct engagement with its institutional stakeholders, including the European Parliament, European Commission services and EU Member States as well as other key stakeholders from across the Knowledge Triangle in a structured, targeted and tailored manner. The cooperation with the EIT Governing Board and the Innovation Communities was further strengthened via structured dialogues, such as the regular EIT Governing Board, EIT-KIC Forum and EIT-KIC Chairmen meetings. Key conclusions on the effectiveness of the internal control system and resources management The EIT adopted a set of internal control standards, based on international good practice, that aim to ensure the achievement of strategic and operational objectives. In accordance with the EIT s governance statement, EIT staff conducted its operations in compliance with the applicable laws and regulations, working in an open and transparent manner and meeting the expected high level of professional and ethical standards. The EIT also put in place an organisational structure that is suited to the achievement of its objectives in accordance with the standards and having due regard to the risks associated with the environment in which it operates. In 2016, the EIT focused on compliance with the standards that were identified as areas of concern during the risk assessment exercise, as well as on the recommendations raised by the auditing bodies. During 2016, the EIT achieved compliance with the internal control standards. 14

11 PART I ACHIEVEMENTS OF THE YEAR 1.1 Incentivising Growth, Impact and Sustainability through the EIT Consolidating, Fostering Growth and Impact of the KICs Promoting Collaboration and Competition among KICs Business plan assessment and grant allocation for 2017 By Decision 26/2016, the EIT Governing Board defined the principles for the determination of the 2017 EIT financial allocation, determined the split of the EIT budget available between the first and the second waves of KICs and laid down the principles for the allocation of the funding including the split between support and competitive funding and the modalities for determining the competitive funding, thereby fine-tuning the EIT s performance-based budget allocation process. In April 2016, the EIT invited the KICs to submit their business plans for 2017 and issued updated guidelines for their preparation. The 2017 financial allocation process was simplified in line with the recommendations of Special Report 4/2016 of the European Court of Auditors, giving equal weight to past performance and future plans within the competitive funding allocation. The first pillar remained focused on the past performance, while the second pillar focused on the future plans and the progress of implementation of the KICs multi-annual strategy. This has simplified and improved the process of competitive review across KICs. All five existing KICs submitted their Business Plans in September 2016 which went through scrutiny of EIT with assistance of external experts. With respect to the assessment of the KICs progress in the implementation of their multi-annual strategy, a new feature has been introduced. In support of the EIT Governing Board and in order to increase the involvement of the EIT Governing Board in the assessment of KICs, the EIT Governing Board designated one GB Member as Rapporteur for each wave of KICs to oversee the assessment process and report back to the Board in the Hearing with KICs in December The GB Rapporteurs followed up on how KICs had implemented the strategic recommendations issued by the EIT Governing Board in previous years through personal meetings with the KICs management teams and assessment of the results of the EIT s continuous monitoring activities. The GB Rapporteurs also met with the expert panels to better understand the strengths and weaknesses of the KICs business plans proposed for The role of the GB Rapporteur was positively perceived by all involved actors and will continue in the future. The Hearings with the KICs were held on 7 December The Hearing format was also improved with longer interactive Q&A session, allowing a more in-depth discussion and thus providing the EIT GB with information for their decision-making. As a result of the competitive funding allocation process, the following amounts were allocated to the first wave KICs for 2017: EUR 79,596,991 to Climate-KIC, EUR 84,059,750 to EIT Digital and EUR 84,343,259 to EIT InnoEnergy. For the second wave KICs the final 2017 financial allocation was: EUR 33,224,756 to EIT Health and EUR 34,775,244 to EIT RawMaterials. In addition, EUR 4,000,000 was earmarked for the implementation of the cross-kic activities. Therefore, the total EIT financial contribution to the implementation of the KICs Business Plans for 2017 amounts to EUR 15

12 320,000,000. As every year, the EIT Governing Board also issued strategic recommendations to each of the five KICs in order to further improve in key areas. The reengineered and efficiently managed programming and grant allocation process resulted in timely signature of the 2017 specific grant agreements with KICs. The EIT signed the 2017 grant agreements by mid-february 2017 with four of the five KICs and transferred the pre-financing payments corresponding to 70% of the EIT grant awarded by end-february The 2017 grant agreement with the fifth KIC was signed in the beginning of April The EIT has managed to reduce the time-to-grant significantly to 5 months on average. Report assessment and verification of Grant Agreements 2015 Ex-ante assessment and payments As regards first-wave KICs, the EIT carried out the ex-ante verification of KIC Reports on the execution of the 2015 Business Plans between April and August The assessment encompassed different operational and financial elements such as completeness and consistency check, performance assessment including KPIs, as well as verification of cost eligibility. External experts supported the EIT in particular concerning performance assessment. The financial assessment was partially based on Certificates Financial Statements obtained from independent auditors. The modalities and processes of the EIT ex-ante verification were strengthened and more thoroughly documented compared to previous years. A newly introduced element was the resolution meeting organised between the EIT and each of the KICs replacing numerous rounds of questions and answers, which increased the efficiency of the process. The validated core KPIs for 2015 per KIC are as follows: Core KPI EIT Climate-KIC EIT Digital EIT InnoEnergy Attractiveness of the EIT Labelled education programmes Ratio: applications for 141 seats Ratio: applications for 400 seats Ratio: applications for 259 seats Number of graduates (EIT Labelled degrees) Business ideas incubated Start-ups/Spin-offs created 35 start-ups + 1 spinoffs 3 start-ups + 4 spinoffs 23 start-ups + 0 spinoffs Knowledge Transfer / Adoption 57 transfer + 25 adoption 56 transfer adoption 5 transfer + 35 adoption New or Improved Products/Services/Processes 38 new + 14 improved 18 new + 6 improved 14 new + 2 improved 16

13 The final grant absorption (in MEUR), absorption rate (%), error rate (%) and reimbursement rate (%) per KIC for the 2015 Grant Agreements is as follows: KIC EIT Climate-KIC EIT Digital EIT InnoEnergy Total Grant allocated by the EIT GB in December 2014 Grant payment requested on 31 March 2016 Grant approved and paid by EIT Difference between awarded and paid Absorption rate 93.3% 79.6% 79.2% 84.3% Ex-ante error rate in grant Reimbursement rate of eligible costs 2.4% 0.1% 0.5% 1.3% 97.4% 84.9% 87.7% The assessment of the GA 2015 Final Report proved that EIT Climate-KIC has strong advantages and delivered good results in 2015, such as a matured business creation ecosystem with 170 start-ups raising a total of 189 MEUR in external investments over the four-year period ( ). However, it was concluded that the refreshed operational structure needed to become more active, effective, shared and functional across the KIC. Moreover, the KIC had yet to develop an effective business model that can lead to financial sustainability. As regards EIT InnoEnergy, a refreshed education strategy and a risk management exercise was implemented which could help address previously identified weaknesses like underperformance in education and could reap benefits in future years. The first projects emerging from the KIC s research activities were becoming mature and starting to deliver results to the market. The business creation area was considered a success within EIT InnoEnergy with new ventures being incubated and started. EIT Digital had made significant progress in 2015 and its results provide the EIT with considerable credibility across the EU. The relatively low number of start-ups created was a result of EIT Digital s strategy to focus on companies in the scaling-up phase. However, only limited progress has been made towards securing financial sustainability in The financial management and financial reporting of EIT Digital is considered reliable; however, the budget absorption shall be better monitored in the course of implementation of future Business Plans. Similarly, for second-wave KICs the EIT carried out an ex-ante verification of the reports on the implementation of the Start-Up Plans in line with the Start-Up Grant Agreements. Both EIT Health and EIT RawMaterials achieved all the objectives and deliverables specified in their respective Start-Up Plan in terms of legal readiness, operational readiness and fostering the EIT identity. As a consequence, the EIT approved the reports and settled the final balance payment for the Start-Up phase. 17

14 The final grant absorption (in MEUR), absorption rate (%), error rate (%) and reimbursement rate (%) per KIC for the 2015 Start-up Grant Agreements is as follows: KIC EIT Health EIT Raw Materials Total Grant allocated by the EIT GB in November 2014 Grant payment requested on 31 March 2016 Grant approved and paid by EIT Difference between awarded and paid Absorption rate 100.0% 99.8% 99.9% Ex-ante error rate 0.0% 0.2% 0.1% in grant Reimbursement rate of eligible costs 91.0% 95.9% Result of ex-post audits Ex-post audits of cost reports related to Grant Agreements 2015 were performed by an external service provider on the basis of the Framework Contract of the European Commission. In accordance with the audit methodology devised by the EIT, the 28 KIC Partners audited (11 for EIT Climate KIC, 11 for EIT InnoEnergy and 6 for EIT Digital) were selected by the EIT primarily on the basis of a risk assessment in order to maximise the efficiency of the resources spent on expost audits. The risk-based audit sample was complemented by a random sample in order to ensure a more representative coverage of KIC Partners over the duration of the Framework Partnership Agreements. The external audit service provider carried out the on-spot audits based on the audit programme provided by the EIT and reported the results to the EIT. The process was completed in May The audited grant covered 17% of the total grant paid for the Grant Agreements As a result of the ex-post audits, the detected error rate equals to 1.18%. The residual error rate after ex-ante and ex-post controls is 0.98%. Contracting and amendment of legal framework (new EIT-KIC Framework Partnership Agreements) All five Framework Partnership Agreements have been signed by February 2016 that has brought full compliance with the H2020 legal framework while also maintaining the EIT-specific features. The Framework Partnership Agreements have been accompanied by detailed Explanatory Notes to ensure that KICs and all KIC Partners are familiar with certain technical aspects of the legal agreements such as the rules applicable to the use of Intellectual Property Rights and the liability of individual KIC Partners in case of partial non-implementation of the Business Plans. Improving the grant assurance framework 18

15 In October 2016, the EIT adopted its revised Grant Assurance strategy. The overall objective of the EIT grant assurance activities is to obtain reasonable assurance that the implementation of EIT grants to the KICs comply with EIT objectives and that KIC activities funded are legal and regular. The strategy relies on the following building blocks of assurance: The revision of the Grant Assurance strategy took on board the recommendations made by external experts, improvement measures designed by the Simplification Task Force as well as lessons learnt by the EIT during the implementation of previous grant cycles Furthermore, in collaboration with KICs, the EIT completely revised its guidelines on the entry and exit of KIC partners to make the rules and procedures clearer and more transparent. In addition, enhancements were made to the Business Planning and KIC Reporting guidelines in order to incorporate lessons learnt from the past. The EIT also issued a transition plan and guidance on EIT funded part of KIC management costs to ensure consistency across KICs in terms of defining KIC management activities and introducing thresholds for EIT funding of KIC management costs. In line with this guidance, as from 2016, the EIT applies a double ceiling system: 1) an overall cap, in terms of percentage of total EIT funding, for the management and overhead costs; 2) individual caps per job category to determine the maximum EIT funding for staff costs. The overall cap was set at 18% in 2016 and will be gradually reduced to 12% by The individual salary caps are based on the salary scales for officials of the European Union as set out in the EU Staff Regulations. The EIT has also circulated to the KICs a guidance note on the implementation of EIT Regional Innovation Scheme (EIT RIS) activities. 19

16 Performance indicator Target Results/achievements Effectiveness and timeliness of competitive funding allocation process to five KICs under grant allocation process 2017 Full allocation of available funds to five KICs by Q4 and implementation of the simplified rules to improve the Business Plan 2017 issued Invitation to submit KIC Business Plan 2017 including estimated budget issued in April Business plans and budget submitted by all five KICs in September 2016 Business Plan assessment reports completed by the EIT in Q Timely signature of Grant Agreements 2016 Signature of Grant Agreements 2016 by end February 2016 EIT Governing Board decision on competitive funding under the annual grant allocation on 8 December 2016 Five Grant Agreements 2016 signed by April 2016 and pre-financing payments made Reduction of the error rate of the KIC financial transactions Improvement in the absorption capacity of KICs Timely review of the KICs reports on the implementation of the good governance principles 100% of recommendations and actions incorporated in the revised grant assurance strategy by Q % reduction of the total final error rate for Grant Agreement 2015 compared to Grant Agreement % of the grants awarded to KICs are actually spent (GA 2016) Revised EIT grant assurance strategy adopted on 12 October 2016, incorporating previous lessons learnt and recommendations Based on results of ex-ante verification of 2015 grants, error rate in grants is 1.3% for first-wave (2015: 2.11%) and 0.1% for the start-up phase of second-wave KICs Based on results of ex-ante verification of 2015 grants, 84.3% for first-wave and 99.9% for the start-up phase of secondwave KICs 20

17 Timely issuance of guidance documents and replies to KIC queries Review completed and best practices shared with the KICs by Q Additional guidance issued for KICs on programming, implementation, reporting and fostering EIT identity, including EIT label by the deadlines fixed in the grant cycle calendar Implementation of good governance principles reviewed in Q2 together with 2015 KIC reports, results communicated to KICs in Q Revised guidelines and transition plan on EIT funded part of KIC management costs issued throughout Improved timeline for the 2017 grant allocation process. Improvement measures made Timely availability of improved IT tools including review of functions of H2020 IT tools At least two improvements of processes agreed at each EIT-KIC Forum on average Improved IT platform available by Q Main business processes have been reengineered leading to shorted time-togrant and time-to-pay Improved IT platform for BP and Report submission Timely processing and finalisation of ex-ante verifications of Grant Agreements 2015 performance and cost reports Improved efficiency of the ex-ante verification of KIC reports ( first time right reporting implemented) Grant Agreements / Start-Up Grant Agreements 2015 verified by end July 2016 and payments made by September % reduced number of appeals by KICs on EIT verification findings compared to 2015 EIT assessment reports for two GA 2015 KIC Reports and two SUGA Reports approved in July, Climate KIC approved in September 2016 Final balance payment made to four KICs in August/September, and to Climate KIC in October Formal letters sent to KICs in Q closing the GA 2015 ex-ante verification, only one KIC submitted a formal disagreement with the conclusions (2015: three KICs submitted letters of formal disagreement) Two audit companies contracted in Q to carry out 128 CFS audits in Q1 21

18 Centralisation and timely contracting of the CFS audits Timely processing and finalisation of ex-post audits Auditors selected and contract(s) with CFS auditors signed by Q Audits completed by end April 2016 (reports for Grant Agreements) 2014) Auditors selected by end October 2016 (selection for Grant Agreements 2015) 2017 in relation to costs declared under the 2016 SGA Ex-post audit completed (28 final ex-post audit reports) in May 2016 on Grant Agreements 2014 Contract signed in October 2016 for expost audit on Grant Agreements 2015, 28 KIC Partners selected for audit Knowledge Triangle Integration Improving the EIT Label Framework In line with the EIT Annual Work Programme 2016, the EIT conducted the assessment of new educational programmes according the amended EIT Label Handbook. The EIT received 15 new proposals submitted by KICs and their academic partners. The assessment of submitted applications by the panel of independent experts was concluded on 31 August 2016 and all seven programmes recommended for the Label (five for EIT RawMaterials and two for EIT Health) have been awarded the EIT Label by the decision of the EIT Interim Director for an initial period of three years. The results of the EIT Label assessments have been communicated officially to the KIC Education Directors, as members of the EIT Label Committee as foreseen by the EIT Label Framework, and the list of EIT Labelled programmes was updated on the EIT website. In conclusion, the EIT Label, as a quality seal, has been further strengthened through the independent assessment carried out by the panel of experts. Encouraging women entrepreneurship The long-term objective of the EIT s women entrepreneurship activities is to empower women entrepreneurs and nurture women leaders by increasing the number of girls aged 12 to 18 interested in technology, innovation, digitalisation, entrepreneurship and leadership. In 2016, the EIT organised a series of pilot female entrepreneurship & leadership activities with the ambition to increase the number of women innovators and entrepreneurs as follows. Three Women Leaders and Entrepreneurs of Tomorrow workshops for years old female students were held in partnership with Ernst & Young in October and November 2016 at several co-working spaces in Budapest. A total of 16 local Hungarian female entrepreneurs provided their insights over the three workshops. The participants were introduced to entrepreneurship, technology, leadership and business management and creation. In total, the three workshops attracted close to 100 participants. 22

19 The EIT supported the expansion of an online coding competition open to women coders aged years in the CEE region. Performance indicator Target Results/achievements Harmonised approach implemented to EIT Labelled masters, doctoral programmes and modules All EIT labelled masters and doctoral programmes aligned with revised EIT Label handbook by Q Seven new EIT Labelled masters and doctoral programmes approved in October 2016 Timely development and implementation of a pilot activity encouraging women entrepreneurship in a sustainable manner Pilot activity implemented reaching minimum 100 young women by Q More than 100 participants reached in the various female entrepreneurship activities Fostering Growth and Creating Impact Synergies with EU funds and programmes In 2016, the EIT continued to exploit synergies and complementarities with priority stakeholders, including EU and other funding institutions. By carrying out a thorough mapping of existing as well as potential synergies of the EIT with EU programmes and initiatives, priority stakeholders have been identified and a structured dialogue has been established with most of them. A concrete example is the collaboration with the Joint Research Centre (JRC), which has been further specified. In this context, a Memorandum of Understanding was signed in September 2016, including a concrete action plan. The identified areas of cooperation are as follows: Smart Specialisation-Regional Outreach, targeting to complementarities of the EIT Regional Innovation Scheme with the JRC s Smart Specialisation Platform (S3P); Education, Training and Skills; Technology Transfer, Intellectual Property and New Financing Mechanisms; Communications and Knowledge Management. In addition, synergies with DG GROW have been explored in different areas. As a result, a reference to the scaling up of EIT education activities for the New Skills Agenda has been included in the Commission Communication for the Start-Up and Scale-Up Initiative. Furthermore, following the collaboration with DG GROW on the Copernicus Programme, an open call on Building skills and earth observation related expertise through Copernicus was launched with KICs as eligible beneficiaries. The call, with a total budget of EUR 613,000, aimed at the provision of educational activities (summer schools, master classes, PhD grants and post-doc grants) in the areas of sustainable exploration, extraction, processing, recycling and substitution. Moreover, the EIT established a structured dialogue with DG GROW F.1 Innovation Policy and Investment for Growth, in the framework of the Smart Specialisation Platform on Industrial Modernisation. 23

20 Collaboration opportunities with the Enterprise Europe Network (EEN) have been initially explored as well as with DG REGIO with a view to smart specialisation and the links with the EIT Regional Innovation Scheme, including the potential of KICs access to the structural funds. Moreover, potential synergies have been explored with the DG RTD Seal of Excellence initiative and as a result a pilot activity with Climate-KIC was launched in Q Create investment project pipeline through collaboration with EFSI and IFIs Due to re-prioritisation of activities and shortage of available human resources, the EIT focused its efforts in relation to IFIs (International Financial Institutions) and EFSI to their potential role in providing initial funds to the EIT Growth & Impact Fund (cf. chapter ), which could create a unique partnership of public and private parties and fill a significant gap in the current funding environment. In 2016, the EIT held numerous discussions with the European Commission (DG RTD), the EIF, EIB and other stakeholders with the objective of securing support for the EIT Growth & Impact Fund. Performance indicator Target Results/achievements Synergies of EIT with other EU programmes (e.g. other H2020 programmes, ESIF, IPA), funding bodies (e.g. EIB, EIF) and policies (e.g. Digital Agenda, SET Plan etc.) and structured dialogue in place, including joint initiatives Facilitate a successful project application by KICs to EFSI or IFIs Analysis completed on links of EIT with other EU programmes and services based on structured dialogue and at least one joint pilot project under way by Q Minimum one project application to the EFSI or IFIs by KICs by Q Memorandum of understanding signed with JRC and collaboration with other programmes in place Preparatory analysis for the EIT Growth & Impact Fund carried out (cf. chapter ) Creating new KICs Designating two new KICs in 2016 on Added-value Manufacturing and Food4Future The 2016 Call for KIC Proposals in the themes Food4Future - Sustainable Supply Chain from Resources to Consumers and Added-value Manufacturing was launched as planned on 14 January Information about the Call was published on the EIT website, in the Official Journal of the European Union and on the H2020 Participant Portal. The Call has also been widely publicised through the EIT s social media channels. 24

21 On 18 February 2016, the EIT organised an Information Day for the 2016 Call for KIC Proposals with over 400 registered participants. The main objectives of the conference was to provide participants with information on the Call and guidance to potential applicants in submitting high quality and successful proposals. The 2016 Call for KIC Proposals was closed as planned on 14 July The process of selecting and contracting independent external experts was finalised in July 2016 and the experts evaluation stage was finalised as planned in October On 17 November 2016, the EIT Governing Board held hearings with the applicants. Following the hearings with the EIT Governing Board, the FoodConnects consortium was designated to become EIT Food and the second-placed proposal was put on the reserve list. The EIT Governing Board did not select and designate a KIC in the area of Added-value Manufacturing. After a thorough evaluation procedure and Hearings with the EIT Governing Board, it was decided unanimously that the single proposal received could not be designated as an EIT KIC, as in the opinion of the Board it did not meet the excellence threshold. As stated by the Independent Observer in its assessment, the evaluation process of the 2016 Call for KICs Proposals succeeded well in delivering an objective, impartial and justified proposition for the final decision. The EIT submitted to EIT Food the designation package including the start-up guidance describing key milestones to be achieved by the consortium in the start-up phase and the template of the Start-up Grant Agreement (SUGA) with annexes still in After negotiations on the start-up plan in January and February 2017, the EIT and EIT Food signed the Start-up Grant Agreement on 29 March Following the outcome of the evaluation process, the EIT Governing Board tasked the EIT to carry out a thorough analysis in order to be able to take an informed decision on whether to re-launch the call in the Added-value Manufacturing theme at a later stage under the current EIT Strategic Innovation Agenda. The EIT carried out the analysis, involving independent experts with expertise in the thematic area, and presented the results, conclusions and recommendations to the EIT Governing Board in its meeting on 23 March Based on the results of the analysis, and after considering all relevant circumstances, the EIT Governing Board decided to re-launch the call for proposals in the area of Added-value Manufacturing in Performance indicator Target Results/achievements Timely launch of the call Timely launch on 14 January 2016 and closure in July 2016 Timely publication of the Call in the OJ, on the Participants Portal and the EIT website Successful organisation of the Info Day Info Day held on 18 February with over 300 participants, 90% satisfied or fully satisfied with the delivered content of the event Timely closure of the Call Successful organisation with over 400 registered participants and above 90% satisfied or fully satisfied with the delivered content of the event 25

22 Timely designation of two new KICs based on transparent evaluation Evaluation process completed in November 2016 Evaluation report and GB Decision on the designation of EIT Food GB Decision on the re-launch of the Call in the area of Added-value Manufacturing in 2018 Designation package issued to new KICs in Q Designation package was issued to EIT Food 1.2. Enhancing the EIT s impact The EIT s next Strategic Innovation Agenda (SIA) As set out in the amended EIT Regulation, in 2016, the EIT started the preparations for the next draft seven-year Strategic Innovation Agenda (SIA), which will include its long-term strategic objectives, operational priorities and potential budget needs for the programming period from 2021 to The SIA will build upon initial impacts of the EIT s and KICs activities, lessons learnt as well as results available of EIT reviews and evaluations, as well as an analysis of potential synergies and complementarities between the EIT s activities and other EU initiatives. 26

23 In 2016, the EIT prepared and the EIT Governing Board approved the roadmap for the development of the SIA, which was aligned with the preparations for the future European Research and Innovation Framework Programme ( FP9 ). This resulted in a shortened development process and earlier submission date for the EIT s draft SIA to the European Commission, as compared with the deadline foreseen in the EIT Regulation. In addition, the EIT also adopted an outline of the main building blocks and chapters of the draft SIA document. Performance indicator Target Results/achievements Relevant and timely prepared roadmap and draft outline of building blocks Approved roadmap for the preparation of the Draft SIA by Q Roadmap for the development of the EIT s next Draft SIA adopted in Q and outline of building blocks /chapters adopted in Q Fostering Knowledge Exchange through Communications, Dissemination and Outreach Fostering Knowledge Exchange through Communications and Dissemination In the course of 2016, the EIT continued to focus its external communications activities on one overarching objective, namely to increase the level of awareness, visibility and understanding of the EIT Community (EIT and its KICs) across the European innovation landscape. To achieve this, the EIT continued to implement the recommendations put forward in its Communications Strategy. EIT external communications and dissemination activities focused on strengthening cooperation with EIT Climate-KIC, EIT Digital and EIT InnoEnergy, providing support to EIT Health and EIT Raw Materials as well as welcoming EIT Food to the Community. The EIT continued to work closely with all KICs to ensure the adoption and consistent use of the EIT Community s brand identity introduced in December The EIT also consolidated its digital communications portfolio and engaged more pro-actively with the media. As part of the digital communications portfolio, a modern website for the EIT was launched in May This has supported the EIT in presenting itself and its activities clearly and coherently. Supported by the deployment of latest functionalities such as the multi-lingual option presenting key EIT information in all EU official languages in 2016, the EIT website has become more user friendly by also facilitating a modern two-way interaction, thus enabling its stakeholders to increase their level of understanding of and engagement with the EIT. This was confirmed in a user satisfaction survey conducted in late 2016 with more than 70% of respondents either satisfied or very satisfied with the content of the website. In addition to the new website, the EIT also strengthened its presence on social media channels in order to engage more actively with its stakeholders. To complement regular EIT high media impact events and milestones, such as the coverage of the EIT s annual Innovation Forum, INNOVEIT, in April 2016 (more than 100 articles/ broadcast information produced by the journalists 27

24 attending, all positive or neutral) and the designation of EIT Food in November 2016 (102 items of coverage across 13 countries including business, university website, regional and international media, 88% positive tonality), a new media relations tools was introduced in 2016, namely the EIT Journalists Thematic Network. This gathering of 14 Tier 1 journalists resulted in 15 Tier 1 articles published, all positive or neutral and led to a further increase of the awareness of the EIT Community s results and impact across Europe. Performance indicator Target Results/achievements Increased level of awareness among target audiences of EIT Community activities, achievements and cooperation possibilities Communication plan adopted by Q EIT 2016 external communications plan adopted KIC InnoEnergy adopts EIT Community brand and becomes EIT InnoEnergy Quantitative and qualitative increase in EIT media coverage Wider social media reach and enhanced engagement Quantitative increase in visits to the EIT website 5% increase in positive media coverage, incl. press (print and online) coverage of the EIT in 2016 compared to % increase in the number of unique users like the EIT Facebook and following the EIT Twitter in 2016 compared to 2015 statistics 10% increase in unique visitors to the EIT website in 2016 compared to 2015 EIT Food smoothly transitions from FoodConnects to EIT Food and EIT Community brand. 35 % increase in positive media coverage (2,176 articles about the EIT in 2016), 35% increase in Facebook likes (12,264 likes on the EIT Facebook page by end-2016), and 42% increase in Twitter followers achieved (12,265 by end- 2016) compared to 2015 figures based on media and social media monitoring reports Unique visitor statistics: 2015: 175, : 214, % increase compared to 2015 Online EIT website satisfaction survey conducted in Q4 2016: Very dissatisfied: 1% Dissatisfied: 5% Neither: 14% Satisfied: 62% Very satisfied: 12% 28

25 EIT Regional Innovation Scheme (EIT RIS) 2016 was the first year when a specific amount of the EIT grant was allocated for the implementation of the EIT RIS. The EIT earmarked 10% of the annual competitive EIT contribution to the KICs for the implementation of KIC activities within the EIT RIS. The total EIT grant allocated by the EIT Governing Board for the implementation of EIT RIS activities in 2016 amounted to EUR 9.7 million. In order to implement EIT RIS activities, KICs ran open calls for participation. The calls served as means to selecting entities in the EIT RIS eligible countries that would cooperate with KICs in implementing EIT RIS activities and further promote the knowledge triangle integration approach to local innovation actors. The calls included selection criteria that required applicants to demonstrate excellent merits in promoting innovation and capacity for working with local innovation actors in the scope of the EIT RIS. In addition, the selected entities had to demonstrate how they thematically were aligned to the respective KIC area. Throughout the year, KICs established cooperation with entities in 15 EIT RIS eligible countries: Bulgaria, Cyprus, Malta, Serbia, Latvia, Portugal, Croatia, Czech Republic, Poland, Greece, Estonia, Hungary, Lithuania, Slovenia and Italy. In total, by the end of 2016 various entities from 16 countries were cooperating with KICs within the EIT RIS, including Romania. Thanks to the established cooperation with the entities in these countries, the local innovation actors and individuals were able to benefit from a number of KIC activities and expertise. The activities to a large extent have been focusing on professional and university education and business creation, for instance in ideation, and start-up and scale-up support. During 2016, seven entities that over the past years had established cooperation with KICs within the EIT RIS had become KIC partners. The EIT grant earmarked for the EIT RIS activities served as a powerful impetus. Tapping into the created momentum, in autumn 2016 the EIT held an EIT RIS stock-taking workshop with the participation of all KICs. During the workshop KICs shared their approaches and experiences with implementing the EIT RIS activities. The workshop also allowed KICs to discuss challenges and identify necessary improvements for the future in order to make the EIT RIS a better focused and result-driven initiative. Following the workshop an EIT-KIC working group on the EIT RIS was established to work on consolidation of the EIT RIS approach. At the end of the year, the work on drafting a consolidated EIT RIS Guidance Note was started. The revised approach will put a stronger focus on transferring KICs good practices of the knowledge triangle integration to the EIT RIS eligible countries, foresee provisions for widening the participation in KICs for entities that are not (yet) able to become KIC partners and deepen the cooperation with local innovation actors through EIT Hubs and Co-location Centres. Furthermore, in 2017, KICs will develop their individual EIT RIS strategies for the years detailing their country strategies and clear targets and indicators. In parallel, a cross-kic EIT RIS activity, starting in 2017, was designed with an aim to allow KICs to implement joint EIT RIS activities, thereby maximising its effects. The KICs plans for the implementation of the EIT RIS in 2017 were assessed by external experts and this had a direct impact on the final grants allocated to KICs for The total allocation of the EIT grant for the EIT RIS implementation in 2017 amounts to EUR 14.2 million. 29

26 Performance indicator Target Results/achievements Widening of participation by EIT RIS target countries in EIT activities At least 4 target countries under EIT RIS joining the EIT RIS activities 16 countries eligible for EIT RIS are covered by KICs EIT RIS activities Fostering and Attracting Talent EIT Alumni Community One of the key milestones achieved in 2016 with regard to the development of the EIT Alumni Community was the setting-up of the first EIT Alumni Board in April 2016, comprising a representative of each of the four KIC Alumni Associations (Climate-KIC, EIT InnoEnergy, EIT Digital and EIT Health) and an EIT representative to provide guidance and support. The EIT Alumni Board developed its strategy for the community and submitted the first work plan for 2016/2017 to the EIT Director. It adopted its rules of procedure and working arrangements and started the implementation of activities. The EIT implemented the EIT Alumni Connect Event in a timely manner and ensured the effective involvement of Board members in the programme and its delivery. The main outputs of the event were the formulation of a shared vision, mission and objectives for the EIT Alumni Community and the proposal of four pilot actions, which were included in the work plan for the first year. The feedback received from students and alumni during and after the event showed that the EIT CONNECT event continued to encourage alumni to share their ideas, knowledge and experience in a cross-disciplinary way; to find partners for collaboration and contribute to shape the EIT Alumni Community by proposing concrete ideas for implementation. The EIT Alumni Community organised the second edition of the EIT Alumni Start-up Days in December 2016, which brought together around 200 participants of different backgrounds to share ideas, form teams, build products/services and embark on entrepreneurial adventures in Barcelona, Berlin, Eindhoven, Lisbon, Paris and Stockholm. Performance indicator Target Results/achievements Successful Alumni Connect event, including ownership by alumni representatives Effective involvement of EIT alumni in event design, programme and follow up and active participation of 120 alumni from EIT labelled educational programmes (>75% Alumni Connect event organised successfully with 97 participants attended with above 90% positive feedback 2016 EIT Alumni Yearbook, input to EIT Alumni Strategy and work plan and activities started 30

27 positive feedback in review) Draft Programme for 2017 EIT Alumni Connect event agreed by Q Programme outline for 2017 prepared EIT Alumni governance structure developed and adopted EIT Alumni governance concept adopted by the EIT by Q First Board of Alumni representatives elected and secretariat operational by Q EIT Alumni governance rules of procedures adopted First EIT Alumni Board established EIT Alumni Strategy and Work plan for 2016/2017 prepared and adopted Action Plan for future EIT alumni activities proposed by Alumni board and approved by EIT by Q Interim secretarial support provided to EIT Alumni Board EIT support for alumni governance launched by Q Enhancing Stakeholder Engagement Stakeholder engagement During 2016, the EIT continued to directly engage with its institutional stakeholders, including the European Parliament, European Commission services and EU Member States as well as other key stakeholders from across the Knowledge Triangle in a structured, targeted and tailored manner. The main objectives of these encounters were to raise awareness on the EIT Community and its activities as well as to showcase achievements and results. Some of the encounters have been used to prepare for the discussions on the EIT future ambitions. Regular formal and informal exchanges took place at all levels including EIT Governing Board Members, the EIT Interim Director and his staff and on numerous occasions at the EIT Headquarters in Budapest, in Brussels and several Member States. For example, in January 2016, the Chairman of the EIT Governing Board and the EIT Interim Director met Commissioner Moedas in Brussels to discuss the links of the EIT to other EU innovation initiatives. In June 2016, the EIT Interim Director had the opportunity to present the EIT Community and its activities to the Science and Technology Options Assessment (STOA) 31

28 Panel in the European Parliament. In October 2016, an EIT Awareness Day was organised in Kiev together with the National Academy of Sciences of Ukraine (NASU) with around 30 local stakeholders from the knowledge triangle. Furthermore, the EIT had regular meetings and information exchange with the European Association of Research and Technology Organisations (EARTO) and the League of European Research Universities (LERU) as well as BUSINESSEUROPE. With regard to the stakeholder management tool, the contracted expert finalised his assessment and described different options including the feasibility of those. Subsequently, the EIT Management decided to launch trials in 2017 for two of the options proposed in order to identify the most suitable tool for the EIT to support stakeholder mapping and contact management. In April 2016, the EIT organised the second edition of its annual Innovation Forum (INNOVEIT) and welcomed more than 350 participants from across Europe and beyond. Business leaders, research and higher education experts, policy and decision-makers, the media and EIT alumni came together to discuss opportunities for collaboration during the EIT Stakeholder Forum, and celebrated the achievements of innovators and entrepreneurs supported by the EIT s Knowledge and Innovation Communities (KICs) during the EIT Awards. The wide range of participants ensured an open dialogue with the EIT Community and added valuable perspectives. The Member State Configuration meeting provided the opportunity for a structured dialogue with the EIT management and the management of the five KICs. In total, 18 countries (19 representatives) participated. An analysis of the results of the feedback questionnaire has been carried out and 94% of the participants responding to the questionnaire indicated that INNOVEIT 2016 was an informative and inspiring conference. Based on the detailed participants feedback and a lesson-learnt exercise, the concept was fine-tuned and specific needs were taken into account for the preparation of INNOVEIT Performance indicator Target Results/achievements Structured dialogue reinforced with institutional and knowledge triangle stakeholders Updated mapping of key stakeholders and events of common interest in place by Q Reinforced structured dialogue with institutional and knowledge triangle stakeholders Mapping of key stakeholders and key events Stakeholder management tool development contract launched Participation of EIT representatives (including EIT Governing Board members) in at least 20 international events of key stakeholders Contract for the development for a tool to support stakeholder mapping and contact Participation of EIT in 21 international conferences and high-level meetings with key stakeholders Finalisation of the experts assessment in 2016, pilot phase in

29 Targeted information provided and dialogue with key stakeholders Positive, above-average feedback received from participants (as measured by a dedicated survey) management by Q Participation by at least five knowledge triangle representatives of all three sides and 75% of EU Member States > 75 % of feedback received above average INNOVEIT 2016: 367 participants (target: 300) Business Representatives: 29 Higher Education Representatives: 26 Research Representatives: 12 MS Configuration: 18 countries, 19 representatives (target 21) 94% positive feedback Relations with Third Countries and International Organisations In 2016, a number of meetings took place, for example the EIT welcomed the Adviser to the Vice President of the National Academy of Sciences of Ukraine and a Delegation from the Moscow State University and the Russian Institute of Advanced Study at the EIT HQ. Moreover, the EIT participated in a workshop organised by the World Economic Forum (WEF) on Digital Ecosystems Europe in Berlin. Performance indicator Target Results/achievements Establish structured dialogues in targeted Third Countries on knowledge triangle integration issues Structured dialogue set up in at least two of the targeted countries and international organisations by Q Engagement with key stakeholders in non-eu countries and international organisations: structured dialogue with the National Academy of Sciences of Ukraine which resulted in the organisation of an EIT Awareness Day in Kiev and establishment of relations with the WEF EIT Awards The EIT implemented in a timely manner the EIT CHANGE, EIT Venture and EIT Innovators Award with the objective to reward successful EIT innovations, entrepreneurial start-ups and graduates from EIT labelled education programmes, to showcase EIT success stories and to enhance awareness about the EIT. The three first-wave KICs each nominated two candidates for the EIT Venture and EIT CHANGE Awards as well as two teams for the EIT Innovators Award. Unfortunately, a large number of KIC nominations for the EIT Innovators Award and EIT Venture Award did not meet the criteria so that the competitions could not take place as intended. It was decided to formally withdraw these Awards and immediately re-launch the call for nominations, although this meant that no monetary prizes could 33

30 be given due to the applicable rules of the EU Financial Regulations. The EIT Jury selected one winner per category. The winner of the EIT Innovators Award 2016 went on to gain further recognition, including winning the MBR Global Water Award in The 2016 EIT Awards were an integral part of the EIT s Innovation Forum INNOVEIT 2016, which was held in Budapest on April The implementation of the 2016 EIT Awards comprised of a promotional campaign, the settingup of a high-level jury for each Award category, the organisation of the Award Ceremony and the implementation of support packages for the winner of the EIT CHANGE Award to further develop his business initiative. Performance indicator Target Results/achievements Timely implementation of the 2016 EIT Awards including a promotional campaign and pitch training session 2016 winners of all three categories awarded and prizes delivered by Q2/2016 Three 2016 EIT Awards winners Prizes selected An Award package was delivered to the EIT CHANGE Award winner Timely launch and nominations received for the 2017 EIT Awards competition EIT CHANGE and EIT Innovators Awards launched by Q and nominations received by Q The winners of the EIT Venture and EIT Innovators Awards did not receive an Award package as the calls had to be re-launched EIT INNOVEIT and the EIT Awards have been moved from Spring to Autumn As a consequence, the launch of the calls has been postponed to Q New Delivery Mechanisms and Results-oriented Monitoring EIT-KIC Relations The Role of the EIT as an Investor and KICs Financial Sustainability Strategies 2016 was the first full-year cycle when KICs implemented their Financial Sustainability strategies in line with the Principles on KICs Financial Sustainability adopted by the EIT Governing Board in The EIT closely monitored the implementation and provided guidance and recommendations to KICs based on their 2015 reports, 2017 Business Plans and dedicated reports on financial sustainability with the help of a high-level external expert. A workshop was held with KICs CEOs to take stock of progress in June Overall, although the quality and implementation of financial sustainability measures vary from KIC to KIC, it should be noted that this challenge has been embraced by all KICs, both top-down (strategy) and bottom-up (operations). A dedicated annex to the 2017 Business Plans was for the first time introduced in 2016, where KICs report and explain revenue forecasts across a range of activities (e.g. ROI and equity, Education, Services & Consulting, Alternative Funding Sources). In December 2016, the EIT Governing Board requested from KICs, as part of strategic recommendations, an update on their financial sustainability 34

31 strategies, measures, assumptions and forecasts, including lessons learnt and proposals on how the EIT can further support KICs in becoming financial sustainable. The objective of the 7-year review ( ) of the first wave KICs, i.e. EIT Climate-KIC, EIT Digital and EIT InnoEnergy, is to assess, at the middle of the maximum 15-year main period of EIT funding to KICs against the baseline set out in the KICs proposals submitted in 2009, as well as in subsequent KICs strategic agendas, business plans and reports, and relevant EIT legal framework (e.g. EIT Regulation, etc.), their delivery of the strategy, main results and impacts from their designation until the end of 2016, including general and specific budget evolution, strengths and weaknesses. This stock-taking exercise will also enable the EIT to draw recommendations for improvements both to the EIT and to KICs as well as drawing lessons learnt and identifying good practices to be shared not only with the KICs subject to the review, but also with the other KICs designated in 2014 and The review should also result in a roadmap and approach for the remaining up to 7 years of EIT funding to KICs to complete their lifecycle, including reflections on the EIT co-operation with KICs after the end of the main period of EIT funding to KICs (i.e. up to year 15 after a KIC designation). A detailed work plan was prepared in Q The completion of the review is expected by Q As stated in the EIT s Principles on KICs Financial Sustainability, In cooperation with other European, national and international organisations and the KICs, the EIT will strive to facilitate other forms of financing to KICs, namely through a dedicated Fund. The EIT has followed this commitment by developing a proposal for a Growth & Impact Fund. The goals and objectives of the future Growth & Impact Fund are, inter alia, to provide funding to invest into early stage and scale-up development of innovative start-ups from KICs pipeline and beyond; to leverage public and private sector capital and other EU funding tools; and to fill gaps in current marketplace due to higher perceived risk, market volatility and structural impediments. The EIT commissioned a report from a law firm with specialised expertise with advice on the legal structure to establish a multi-compartment investment fund. The EIT conducted throughout 2016 numerous meetings and consultations with KICs, including a workshop with KICs CFOs, European Commission (DG EAC, DG RTD, DG GROW), EIF, EIB and other stakeholders with a view to refining the concept of the Growth & Impact Fund and launch a pilot tentatively in 2017/2018. Performance indicator Target Results/achievements Reporting mechanism for financial sustainability strategies of KICs in place First report on Financial sustainability provided in Q Financial sustainability reports submitted by KICs and performance assessment by EIT KICs revenue forecasts in a dedicated Annex in the 2017 Business Plans Concept for 7-year review of KICs in place Study on the legal structure of the Impact Fund 7-year review launched by Q Study and clear recommendations completed by Q Introduction of a FS Coefficient in KICs reports and Business Plans Terms of reference of the 7-year review prepared Study on the legal structure of the Impact Fund completed 35

32 Consultation with stakeholders on draft concept completed by Q Extensive consultations with KICs and other stakeholders, namely European Commission (DG EAC, DG RTD, DG GROW), EIF and EIB carried out Simplification The Task Force Simplification (TFS) was set up in 2015 with the objective to propose improvement measures leading to significant efficiency gains resulting in lower overhead and administrative workload for all sides, and therefore ensuring improved operations and results. A first package of redesigned processes and quick wins were adopted at the end of 2015 and early-2016 (e.g. code of collaboration, grant cycle essentials, etc.), whilst some other processes took more time to redesign. The TFS analysed the feasibility of introducing a multi-annual grant cycle in line with the recommendations of Special Report 4/2016 of the European Court of Auditors, and concluded that multiannual grant agreements combined with annual competitive funding allocations would not result in increased legal and financial security for KICs. Furthermore, it would not lead to significant savings in operational workload due to annual Business Plan amendment and KIC reporting obligations. Pre-condition for a genuine multiannual cycle is the possibility of committing grants which could cover costs of activities for multiple years. This is not possible within the current EU multiannual financial framework; however, it should be possible to implement for the post-2020 period, provided that commitment appropriations for the EIT budget can be allocated in multi-annual tranches accordingly. Therefore, the TFS designed several measures to maximise efficiency within the framework of current annual grant cycles. A plan has been developed and implemented in order to reduce retroactivity as regards the signature of annual grant agreements, applicable already for the 2017 grant cycle, i.e. KIC Business Plan assessment and EIT GB decision in Q3 and Q The reengineered and efficiently managed grant allocation process resulted in a reduction in time-togrant and led to a timely signature of the 2017 grant agreements with KICs. The EIT signed the 2017 grant agreements by mid-february 2017 with four of the five KICs and transferred the pre-financing payments corresponding to 70% of the EIT grant awarded by end-february The measure First time right reporting was tested as part of the 2015 KIC reporting and EIT report assessment exercise in Q1-Q Face-to-face resolution meetings were scheduled with each KIC as part of the process, with the aim to discuss and conclude on outstanding issues, which reduced the scope and necessity of further follow-up work, and as a consequence shortened the time needed for the approval of KIC Reports and execution of final balance payments (i.e. shorter time-to-pay). With the purpose to optimise the audit chain and eliminate overlaps among different layers of audit throughout the grant cycle, the EIT decided to increase the assurance obtained from the first level of control by improving the quality of Certificates on Financial Statements (CFS). For this reason, instead of requesting beneficiaries to procure and contract CFS auditors, the EIT contracted two audit companies in Q to carry out 128 CFS audits in Q in relation to costs declared under the 2016 grant agreements. This has reduced the perceived administrative burden on KIC Partners and made the EIT-KIC model more attractive to industry and business participants. 36

33 Numerous new or updated guidelines have been issued, for instance on the entry and exit of KIC partners, uniformity around business plan amendments, business planning and KIC reporting. Each time a consultation process took place with KICs in the framework of the TFS. The use of simplified cost options is encouraged by the EIT, the pre-condition being to agree on unit costs and lump sums which KICs can apply in course of implementation. Unit costs for EIT education programmes have been accepted by Commission Decision No C(2016)8298. Performance indicator Target Results/achievements Feasibility of most promising out of the box ideas for simplification explored Roadmap of Task Force simplification implemented as planned Two feasibility studies completed by Q Agreed measures on simplification implemented and adopted by the EIT-KIC Forum by Q % of the improvement measures implemented by Q The TFS thoroughly analysed the feasibility of a multiannual grant cycle, and within the boundaries of the current legal framework, designed measures to implement multiannual elements as much as possible The TFS designed numerous improvement measures for adoption by the EIT-KIC Forum Improvement measures implemented as part of the grant cycle, for example first time right reporting, uniformity around amendments, optimisation of guideline consultation processes, optimisation of audit chain Monitoring, Impact Analysis and Evaluation Implementation of the EIT monitoring strategy The review of the EIT core Key Performance Indicators (KPIs) was finalised as planned in February As a result, the EIT in a cooperation with the KICs developed a new set of 11 new results-oriented core KPIs to better address the EIT intervention and the KICs activities. The following new KPIs were approved by the EIT Governing Board: Graduates from EIT labelled MSc and PhD programmes Start-ups created by Graduates from EIT labelled MSc and PhD programmes Start-ups created as a result of innovation projects Start-ups supported by KICs 37

34 Investment attracted by ventures that receive/have received KIC support Products launched on the market (aligned with Horizon 2020) Success stories submitted to and accepted by EIT External participants in EIT RIS programmes Budget consumption of KICs Error rate of KICs Financial sustainability of KICs The new KPIs were integrated into the 2017 Business Plans guidelines and communicated to the KICs. Detailed definitions and associated supporting documentation for the 11 new KPIs have been developed and agreed on over the year in a cooperation with the KICs. The KICs have prepared their 2017 Business Plans based on the new set of KPIs. The Education Review has been finalised as planned. The main findings and recommendations were presented to the EIT Governing Board members in the 44 th EIT GB meeting on 8 December The review assessed the added value and impact of the KIC educational activities and how they are measured, the efficiency and the effectiveness of the EIT and its KICs to deliver on the strategic objectives as set out for Education in the amended EIT Regulation and Strategic Innovation Agenda. The main finding of the report is that the most added value occurs when programmes link the Education Pillar with the Innovation Pillar and the Business Creation Pillar, creating new forms of learning experiences for students. According to the external experts involved in the review, the EIT s bridging role is not novel but it has put an exceptional emphasis on it. On the other hand, positive impacts are largely limited to the partners themselves and not spreading to universities or businesses outside of the partnerships, except where a specific outreach effort was made. In this sense, it is recommended to strengthen the unique cross-pillar activities as added value, benefitting accelerator and business investor pipelines and thus identifying sources for sustainable funding. Regarding the skills and competences, experts find graduates from EIT labelled programmes and other EIT learners more international, more interdisciplinary and more entrepreneurial than regular graduates. These outcomes are the result of the combination of prior learning, self-selection, selection processes, extra-curricular activities, the major followed, the KIC Added Value Activities and the EIT community effect. The final report has a significant value for the EIT as it provides many valuable recommendations for the future development of the education agenda. The Innovation and IPR review has been rescheduled for 2017 due to conflicting priorities. The assessment will cover all types of EIT funded innovation or research activities as implemented by the KICs and conducted between 1 January 2011 and 31 December A comprehensive assessment of the implementation of Knowledge Triangle Integration (KTI) within the EIT and its KICs was initiated in The assessment evaluates how KTI is elaborated in the vision and strategy of the KICs, CLCs and the EIT, how KTI is implemented in the strategic and operational planning and in the practices of the KICs, and how the role of the Co-Location Centres is shaped as focal point for KIC Activities. The assessment will provide insight in the added value, efficiency and effectiveness of Knowledge Triangle Integration as concept to achieve the mission of the EIT. In 2016, the Terms of Reference have been developed and four experts have been appointed to carry out the Assessment. In addition, a Validation Group with three high level scholars has been assembled. In November 2016, the kick-off meeting with the experts of the Assessment Team has taken place. The final report is expected to be delivered in June

35 The EIT set up a risk-based Monitoring Plan 2016 with detailed monitoring activities for each KIC. The Monitoring Plan 2016 distinguished between two types of monitoring activities: monitoring activity of a particular KIC added-value activity or project or a review of specific processes or features of the different KICs. Altogether 17 monitoring activities were carried out of the 18 planned monitoring activities. In total, 19 on-site visits were conducted. Following each monitoring visit, a set of recommendations was formulated and communicated to the KICs. Among others, the following conclusions were reached: following the outcomes of the pilot monitoring visit of the procurement procedures in EIT InnoEnergy and in order to verify the applicability of the new public procurement directive in case of the KIC legal entities, it was recommended to conduct similar monitoring activities across all other KICs in 2017; the KICs business acceleration activities are progressing very well and many good practices or potential lessons learnt were identified; the implementation of the EIT RIS activities require more monitoring efforts in the future by a cross-kic taskforce chaired by the EIT; there is a need to have a more systemic approach towards monitoring the selection of innovation projects by KICs (to be addressed in depth by the innovation and IPR review that will be implemented in 2017). Performance indicator Target Results/achievements Finalisation of result-based KPIs for the EIT and improved performance measurement system (scoreboard) Better evaluation and understanding of existing education agenda activities, leading to improve the KIC grant management process in Assessment of Knowledge triangle integration practices in KICs with specific focus on Colocation Centres Evaluation of KIC innovation actions and Identification of good practices of existing KIC innovation activities, including review of IPR issues. Conduct of risk based monitoring activities by EIT staff Timely finalisation of the KPI review by Q Timely finalisation of the education review in Q Assessment launched by Q Timely finalisation of the innovation review in Q Monitoring plan adopted and implemented The EIT GB approved the new set of EIT core KPIs in March 2016 Final report was approved by the EIT in December and the recommendations were submitted to the Education Panel The Assessment was launched in November 2016 through a kick-off meeting with the experts of the Assessment Team The implementation of the innovation review was postponed for monitoring activities carried out with 19 on-site visits 39

36 Contribution of monitoring activities to improving KIC the grant management Mid-term reviews with 5 KICs organised by Q Database of reports and recommendations from monitoring activities established Evaluation and impact assessment The EIT launched in October 2016 a study and an analysis on the global and European impact of the EIT and its KICs from 2010 to 2016, conducted by an external contractor. The study is foreseen to be published in the Q The launch of the impact study was slightly delayed because the scope of the study was extended and in order to ensure proper alignment with the objectives, work plan and timeline of the mid-term evaluation of the EIT carried out by an external consultant contracted by the European Commission. The impact study will identify and describe the main factors through which the EIT and its KICs have economic and societal impact and in particular demonstrate how: 1) The EIT and its KICs add value to Europe s economic growth, competitiveness and society at large, including the global dimension; 2) Impactful and novel is the innovation ecosystem for Europe as proposed by the EIT and its KICs societal challenges are addressed by the EIT community; and 3) The EIT funds innovation; by taking into consideration the uniqueness of the EIT-KIC model. Performance indicator Target Results/achievements Timely launch and completion of an impact study together with KICs Final report available by Q Launch of the Impact Study in Q Inception Report of the Impact Study delivered in December Horizontal activities Strategy: Co-ordination and implementation EIT Governing Board meetings and EIT management The EIT provided support to the EIT Governing Board including the smooth running of, and follow up to, Governing Board and Executive Committee meetings as well as GB Working Group meetings and advisory activities to the GB Chairman, GB Members and the Director. In 2016 the EIT Governing Board held six meetings in Budapest and adopted 36 decisions. Five new EIT Governing Board members were selected and appointed in 2016, based on open calls for expression of interest, further to the end of terms of office of four GB members and one resignation. The Executive Committee met five times in Budapest in 2016 to prepare the Governing Board meetings. Additional extraordinary Executive Committee meetings were not organised. 40

37 Performance indicator Target Results/achievements Quality of collaboration between the members of senior and middle management measured by the number of meetings in 2016 Number of and participation in meetings of the EIT Strategy Working Group Ongoing feedback collection among senior and middle management to assess quality of collaboration and to identify areas of improvement The EIT Management Team met on a weekly basis, complemented with meetings of Strategy Working Group, ad-hoc project oriented cross-unit meetings as needed and quarterly review workshops Preparation of Strategy Notes on key elements of the EIT/KIC model Effective preparation and implementation of Governing Board (GB) and Executive Committee meetings, GB Working Groups meetings, Panel and other meetings with GB Members participation Timely selection and appointment of four new EIT GB members Effective and timely preparation and implementation of at least 4 regular GB meetings, 4 regular Executive Committee (ExCo) Meetings, Annual KIC Hearing and GB-KIC Spring workshop in compliance with all applicable rules and procedures New EIT GB members appointed by Q Six Governing Board meetings and five Executive Committee meetings organised in 2016 Five new Governing Board Members appointed (four due to end of terms of office and one due to resignation) Planning, Programming and Reporting The EIT implemented its annual cycle of planning, programming and reporting processes in compliance with the applicable rules and regulations. As regards full financial autonomy of the EIT, the Commission formally launched the process on 30 June 2016 by requesting the EIT to complete a detailed self-assessment questionnaire. The EIT submitted the completed questionnaire and supporting documents end of October After reviewing the responses and documents submitted, the Commission carried out a fact finding visit in January Based on the work done in 2016, the Commission is expected to be in a position to decide on the EIT full financial autonomy in

38 Performance indicator Target Results/achievements Timeliness (preparation and submission) of the documents foreseen in the SPP (Strategic Planning and Programming) cycle, namely Budget, Annual Activity Report, Budget implementation report, Report on budgetary and financial management and Single Programming Document Timeliness (preparation and submission) of internal quality reporting Timely implementation of the Annual Work Programme 2016 Timely granting of the full financial autonomy by the European Commission Budget 2017, Draft budget 2018, AAR 2015, Budget implementation report 2015, Report on budgetary and financial management 2015 produced and transmitted on time EIT Governing Board adopts the Single Programming Document , Budget 2017 and Draft Budget 2018 by mid-dec 2016 On time delivery of accurate internal reports (ad-hoc, monthly or quarterly) and bi-monthly summary reports for the Commission and GB 90% of activities implemented by Q Full financial autonomy granted by Q AAR 2015, Draft SPD , Budget 2017, Draft budget 2018, Report on budgetary and financial management 2015 adopted in 2016 by the deadlines foreseen in the EIT Financial Regulation Monthly budget execution reports mentioning the deviation to the forecast produced Monthly procurement reports with comparison to the forecast produced Bi-monthly activity reports for Commission and GB produced Internal AWP 2016 implementation report produced Self-assessment carried out in 2016 and Commission fact-finding visit took place in January Internal control and risk management In line with the EIT Financial Regulation, the EIT budget has been implemented in compliance with effective and efficient internal controls. To achieve this, the EIT implemented the internal control standards. These processes are applicable to all levels of management and designed to provide reasonable assurance in order to maintain effectiveness, efficiency and economy of operations, achieve reliability of reporting, safeguard assets and information and prevent, detect, correct and follow up fraud and irregularities 42

39 Performance indicator Target Results/achievements Achieves a high level of implementation of Internal Control Standards Critical risks are identified and addressed Timely implementation of the actions foreseen in the EIT Anti-Fraud Strategy 90% of internal control standards are implemented and weaknesses in remaining standards are identified and action plan in place by Q Critical risks are identified in the Annual Work Programme and action plans to address them are in place 80% of recommendations from the audit follow up register are closed 100% actions planned for 2016 implemented by Q Annual review of implementation of ICS carried out Critical risks identified in the Annual Work Programme part of the SPD Risk register updated Audit follow up register updated on a quarterly basis Anti-fraud survey and trainings organised for staff and improved conflict of interest assessment for GB members. 60% of the actions planned for 2016 implemented, the rest is ongoing in Internal Communication and work environment Action plan for improving the internal communications The EIT has improved its internal communication and teamwork to efficiently manage the challenges set out in the Annual Work Programme and to achieve a high level of staff satisfaction. Regular staff meetings were organised generally on a monthly basis to inform staff on priorities, results and latest developments. Two social events were organised in June and December, respectively, as well as a team building event to increase cohesion and improve teamwork. The results of the staff satisfaction survey conducted in December 2016 shows an impressive improvement compared to 2015, as the overall rate of staff satisfaction has increased from 50% to 69%. Performance indicator Target Results/achievements Efficient internal communication structures are in place. 90% of measures implemented of the internal communications action plan by Q Actions planned for 2016 in the internal communication plan largely implemented 43

40 Improved level of staff satisfaction Staff Committee in place Successful events organised by the Social Committee for improved team building at EIT 10% average increase of staff satisfaction by mid end 2016 compared to previous year Staff Committee in place by Q events, including one team building, organised with positive feedback by participating staff Annual staff survey satisfaction survey showed an increase of overall satisfaction from 50% to 69% Decision was taken to establish a joint Staff Committee with CEPOL (in 2017) Social and team building events completed Administrative support Human resources management The EIT has essentially achieved full staffing through a series of measures that were implemented in the last three years and substantially improved the staff management, recruitment process, reduced turnover and improved the work environment. During 2016, the EIT recruited 16 new staff members, 9 among them to reinforce the core operational unit (Partnerships Management), 3 to the other operational unit (Policy and Communications) and an additional 4 to support Procurement, Finance, IT and the Director s Office. As of 31 December 2016, 59 of the 63 authorised positions were filled. This is a significant improvement compared to the situation as of year-end 2015 when the EIT employed 50 staff. For further details on HR management, please, refer to section 2.4. Performance indicator Target Results/achievements Timely and compliant completion of selection procedures. Identification of in-house training courses in the learning and development plan Publication of the vacancy notice within 6 weeks of a vacant post and completion of reserve lists within 8 weeks from the deadline for applications 90% of training sessions provided according to plan 16 staff recruited in 2016; 59 posts filled as of 31 December The average time needed for establishing reserve lists for vacancies published in 2016 was 17 weeks. All eight in-house training sessions completed as planned 44

41 Timely and correct payment of salaries Trainees support EIT activities and increase knowledge of EIT Timely implementation of the revised EIT Schooling policy 100% of salaries paid correctly and in time At least 6 traineeships successfully completed in 2016 Revised EIT Schooling policy implemented by Q Salaries transferred on time Eight traineeships successfully completed Revised policy adopted by EIT Finance and Procurement management For details on budgetary and financial management, please, refer to section 2.3. Performance indicator Target Results/achievements High level of absorption of EIT funds Legality and regularity of Commitments and payments Efficient and effective financial procedures > 90% of non-grant commitment and payment appropriations absorbed by Q4 For <5 % of commitments and payments errors are detected ex post 100% review of procedures by Q % of authorised commitment appropriations implemented 99% of authorised payment appropriations implemented For ex-post error rates in grant payments, please, refer to section 2.5 New Vade-mecum, workflows, templates and revised relevant EIT decisions adopted in The focus has been on key financial procedures. Efficient and effective procurement procedures completed 85% procurement procedures completed in line with the 2016 procurement plan by Q4 (subject to the initiation of the operational units) including 100% of the prioritised procurement procedures Less than 10% of procurement All procurement procedures completed as planned with the exception of the activities that have been (partially or fully) postponed to 2017 or cancelled. 118 procedures were planned for 2016, 80 contracts were signed in 2016, 9 procedures were cancelled and 29 postponed to No new Court cases or complaints against procurement procedures in

42 procedures trigger complaints / court cases. Timely and correct delivery, compliance and comprehensiveness of the EIT accounts Timely development of the EIT policy on the use and selection of external experts Timely acquisition of a budget planning and monitoring tool Submission of final accounts for 2015 by Q2 All payments carried out <2 working days after authorisation by RAO. Policy on the use and selection of experts approved by Q Budget planning and monitoring tool in acquired and in use by Q Final Accounts for 2015 adopted on time Payments made from EIT account on the same day of authorisation (99.15%) Policy adoption postponed to 2017 Budget management tools Bluebell and Speedwell acquired and put into production in Q Management of ICT and Document Management Throughout 2016, the EIT ensured that adequate IT tools and infrastructure, IT security and document management are in place. Performance indicator Target Results/achievements Adequate IT and infrastructure tools available to staff made available including data network operations, help desk, PC/Client support, software support, Systems administration and programming, voice communications, web publishing, Internet access, and printing. Individualised ICT services for staff members include inter alia: desktop/thin client and mobile computers, Intranet (SharePoint based) access, remote data access, mobile phones and management Make general and individualised IT systems permanently available to all staff as required, In 2016, the IT infrastructure and the IT services were consolidated and remote access and mobility features were made available to EIT staff improving working flexibility and efficiency. The ticketing system was improved and the resource time allocated for each ticket or incident has been introduced. Downtime of the IT systems were limited to normal maintenance operations and incidents had an impact within the expected target level. 46

43 Hours of continuous downtime of systems minimised and timely response to user requests provided Open call launched for development and maintenance of IT services Maximum one hour downtime of system per incident and <5% of user requests require more than one day to resolve New framework contract in place by Q One incident occurred in 2016 that took more than one hour to resolve. 3.66% user requests required more than one day to resolve in 2016 (26 out of 709). Open call for IT services was postponed to Improved IT governance through implementation of the IT action and audit plan 90% of actions from the IT action plan implemented, including all high priorities by Q4 Improved IT Governance and procedures in place. IT actions that required procurement: 91% completed (31 out of 34); IT service delivery actions 100% completed; IT Steering Committee related actions 75% completed; IT security actions 50% completed. Sound and comprehensive IT change management process established High level of security of IT operations At least 6 meetings of the IT Steering Committee with concrete decisions Change management process to be in place by Q Clear access policy in place by Q Security weaknesses identified and In 2016, there were 5 ITSC meetings and decisions were made available through the meeting minutes A Change Management Policy including an IT Change Procedure was drafted in 2016 and adopted in An Access Policy was adopted in 2016 IT management/audit software for infrastructure monitoring (SPLUNK) installation turned out to be included 47

44 actions to address them remedied by Q4. in the CERT-EU services and postponed in To cover the auditing needs, a lighter software was acquired and installed. Checkpoint Security was acquired in 2016 and installation expected to be finalised in Q The VEEAM Disaster Recovery environment was setup and installed in Q4 and the recovery services are in place CERT-EU Security services were acquired in Q and a vulnerability test was performed in Q Reliable and comprehensive implementation of DMS Timely revision of Policies and Practices in line with the action plan following the IAC recommendations (DMO, LSO, LISO and DPO related tasks) Timely revision and comprehensiveness of the Reporting and Business Planning modules Specifications for future IT tool developments completed, supporting alignment with new FPA and Horizon Timely development of the EIT-KIC Business Intelligence Tool Comprehensive DMS operational by Q At least 60% of actions implemented by Q Reporting 2015 (Q1) and Business Planning 2017 (Q3) IT tools fully in use and users trained. Technical specifications developed for core business knowledge management tools, i.e. KIC partner management and monitoring Fully-fledged reliable Business Definition of the business owner and business administrator of the IT tools Update of the functional mailboxes Preparation of a file note on handling of physical mail Upgraded Reporting (2015) and Business Planning (2017) modules of the EIT grant management system put into production on time Partners In-and-Out (PIO) module of the grant management system developed and put into production in 2016 Further development of the Business Intelligence module of the grant 48

45 Intelligence tool in place by Q management system postponed to Logistics and Building Management Throughout 2016, the EIT provided staff with a functional, attractive and safe working environment, an adequate level of logistics support, sufficient office supply stocks management, and proper level of building security. Performance indicator Target Results/achievements Accurate assets register in line with physical use/storage Response time to building and security-related issues Up-to-date ABAC ASSET Inventory with >98% accuracy >98 % of building and security related incidents are reported to the external building management within one working day All assets are registered in ABAC Assets There were five cases (incidents and malfunctions), reported to the facility management within one working day. All incidents reported to the external building manager were closed in the financial year. Test evacuation of the building was regular. No significant security incident reported. Incoming and outgoing mails registered and expedited timely and efficiently Adequate stock of office supplies Timely and compliant completion of works and availability of adequate work places (business continuity) Mails sent on the same day as provided and mails received are registered and distributed on the same day based on revised procedures by Q Stable provision and availability of quality office supplies without disruption (continuous) Office modernisation works carried out by Q Mails sent, received and registered without delay Guideline on mailing was elaborated Office supplies provided on time. Stock was monitored continuously. Procurement procedure on office modernisation work was not successful, thus this action was postponed to 2017 New office furniture purchased in

46 Office repainted and design upgrade completed by Q Exhibition of KIC innovations in place by Q Reallocation of small number of offices completed without interruption of daily work Internal Audit Capability See section on the assessment of audit results and section 2.7 on follow up to IAC recommendations and action plans for IAC audits. Performance indicator Target Results/achievements Timely preparation of the IAC audit plan Timely production and transmission of IAC audit reports Audit plan adopted by the EIT GB by March 2016 Submission of the reports to the Director and to the Governing Board by end 2016 Audit plan for 2016 adopted by the GB Reports on audit findings and recommendations in line with the audit plan 50

47 PART II MANAGEMENT 2.1. EIT Governing Board The 12 appointed members of the EIT Governing Board are appointed by the European Commission, providing a balance between those with experience in business, higher education, and research. They have a four year nonrenewable term of office. The EIT Governing Board members act in the interests of the EIT, safeguarding its goals and mission, identity, autonomy and coherence, in an independent and transparent way. The EIT Governing Board is assisted by an Executive Committee composed of four Governing Board members, including the Chairman of the EIT Governing Board, plus an observer from the European Commission. The EIT Governing Board also had three additional members representing the Knowledge and Innovation Communities until September 2016, when the EIT Governing Board decided to propose to the European Commission a modification of the structured strategic dialogue between the EIT Governing Board and KICs. The EIT proposed to the European Commission to replace the permanent Representative Members with more effective means of communication such as inviting the Chairpersons of the KICs for an annual strategic discussions with the EIT Governing Board. In addition, the EIT Governing Board proposed further modifications in the EIT Regulation in particular in the governance structure and decision making process. In 2016 the EIT Governing Board held six meetings in Budapest and adopted 36 decisions, including a simplified and fine-tuned Rules of Procedure in mid Five new EIT GB Members were appointed in 2016 further to the end of terms of office of four GB members and one resignation. Subsequent to open calls for expressions of interest in November 2015 and May 2016, the European Commission appointed four new GB Members in the field of business and one member in academia. The Executive Committee met five times in Budapest in 2016 to prepare the Governing Board meetings. Additional extraordinary Executive Committee meetings were not organised. In November 2016, following hearings with applicants for the 2016 Call for KIC Proposals, the EIT GB designated EIT Food as a new member of the EIT Community. In December 2016, a hearing with the five KICs designated in 2009 and 2014 was held to assist the Governing Board in reaching a decision on the annual financial allocation to the KICs for the financial year In accordance with the transparency principle, the decisions of the EIT Governing Board have been published on the EIT website. The EIT Governing Board hosted special guests in some of their meetings, in particular, Commissioner Navracsics who joined the 44 th EIT Governing Board meeting in December 2016 to exchange views on the future of the EIT. In 2016, EIT GB Members were also active in representing the EIT with speaking engagements at high level prestigious conferences and events to enhance visibility of the EIT in the European innovation arena. 51

48 2.2. Major Developments In 2016, the EIT made significant efforts to mitigate the impact of the reduction in its multi-annual budget on the activities of the KICs. For the period of , the budget of the EIT, as an integral part of Horizon 2020, the EU s Framework Programme for Research and Innovation, was initially established at EUR 2.7 billion. Within the multiannual financial framework, the indicative budget for 2016 was EUR 336 million. However, as result of the proposed Regulation for the establishment of the European Fund for Strategic Investments this budget was proposed to be reduced to EUR 200 million. Due to the joint efforts of the EIT, its KICs and the European Commission, the EIT budget cuts have been reduced significantly and the final EIT budget for 2016 was EUR 285 million. Although the reduction was still substantial compared to the indicative budget, the EIT was able to maintain the previous level of funding provided to its KICs and ensured that KICs innovation activities do not suffer a significant setback. Five new EIT GB Members were appointed in 2016 further to the end of terms of office of four GB members and one resignation. Subsequent to open calls for expressions of interest in November 2015 and May 2016, the European Commission appointed four new GB Members from the field of business and one member from academia. Another major development was the negotiation and conclusion of the new Framework Partnership Agreements with the five KICs, as described in Part 1 of this report Budgetary and Financial Management Planning The EIT s medium-term priorities were specified in its rolling Triennial Work Programme ( ), replaced by the Single Programming Document as of , which are translated into annual work programmes and financing decisions. Both multi-annual and annual working programmes are adopted by the EIT Governing Board on the basis of proposals by the EIT Director. Implementation Since June 2011, the EIT has been partially financially autonomous, which means that in 2016 the EIT s partner Directorate-General at the European Commission (DG EAC) continued to provide consultation and ex-ante verification of contracts in two areas: 1) each step of KIC grant management and 2) procurement procedures above the threshold of EUR 60,000. In 2016, the EIT achieved a high rate of implementation both for commitment and payment appropriations owing to more regular monitoring by the management and certain efficiency gains in the workflows. The authorised budget for commitment appropriation was implemented at 94.87% (2015: 90.58%) and for payments at 99.00% (2015: 96.49%). In 2017, the EIT intends to further improve and make its budgetary planning, monitoring and implementation processes more effective and efficient by 1) further simplifying the existing procedures and systems making them more appropriate to the needs of management and staff and 2) providing more guidance and practical trainings for staff members. Detailed figures on budget execution are presented in Annex II. 52

49 Amendments and transfers The EIT budget was amended twice during the 2016 financial year. Four transfers below the limit established by the EIT Financial Regulation were approved by the EIT Interim Director. Carry-over/re-entry from previous financial year(s) Carry-over of appropriations from 2015 to 2016 on decision The EIT Governing Board decided to re-enter appropriations cancelled in 2014 and 2015 instead of carrying over them. Re-entry of appropriations from 2014 and 2015 to 2016 on decision In its decision on budget amendment No 1/ of 29 July 2016, the EIT Governing Board decided to re-enter appropriations, which were cancelled in 2014 and 2015, for the financial year The decision by the EIT Governing Board concerned the re-entry of commitment and payment appropriations cancelled. Both commitment and payment appropriations re-entered were fully consumed in Appropriations cancelled in 2014 were re-entered and consumed in 2016 in full. Part of the appropriations cancelled in 2015 was re-entered in The remaining part of appropriations cancelled in 2015 was booked on Title 4, where EIT collects cancelled appropriations not needed in the financial year. Title 4 allows to monitor the use of cancelled appropriation and be in line with the derogation for following the three-year rule 8. Table Implementation of appropriations re-entered from 2014 and 2015 to 2016 Budget line from 2014 from 2015 total B3-000 KIC grants 5,227, ,874, ,101, ,101, % B4-001 Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Committed (2/1) Total 5,227, ,874, ,101, ,101, % Cancelled appropriations for year n-1 not used in year n - 9,012, ,012, % Total - 9,012, ,012, % GRAND TOTAL 5,227, ,887, ,114, ,101, % Budget line from 2014 from 2015 total B3-000 KIC grants 225, ,319, ,545, ,545, % B4-001 Budget Item Description Payment appropriations, EUR (3) Payments made, EUR (4) % Paid (4/3) Total 225, ,319, ,545, ,545, % Cancelled appropriations for year n-1 not used in year n 4,520, ,520, % Total - 4,520, ,520, % GRAND TOTAL 225, ,839, ,065, ,545, % 7 Decision 22/2016 (02745.EIT.2016.I.GB.WP) 8 According to Art 14 (1) of EIT FR: Appropriations which have not been used by the end of the financial year for which they were entered shall be cancelled. Given the needs of the EIT, the cancelled appropriations may be re-entered in the estimate of revenue and expenditure up to the following three financial years, in accordance with Article

50 Automatic carry-over of appropriations corresponding to obligations duly contracted Pursuant to Article 14 (5) of the EIT Financial Regulation, non-differentiated appropriations, corresponding to obligations duly contracted at the close of the financial year, must be carried over automatically to the following year % of the non-differentiated appropriations, namely the administrative appropriations carried over from 2015 to 2016 were paid, which represents an adequate level of execution, taking into account the nature of these expenses. However, the estimation of amounts to be carried over has to be further improved in On Title 1 budget lines, 86.88% of appropriations carried over were paid. The implementation rate on Title 2 appropriations (89.96%) primarily derives from expenses related to the security, postal and telecommunication costs, and travel costs of EIT Governing Board members, which by nature are difficult to estimate. Budgetary commitments on Title 3 budget lines corresponding to obligations duly contracted and not or only partially paid at the closure of the financial year were carried forward from 2015 to The execution rate of 87.14% for operational expenses was mainly due to the following: KICs could not fully absorb the 2015 grants and the actual cost of grant and monitoring experts and the annual EIT Innovation Forum INNOVEIT event were lower than expected. RAL situation at the end of the financial year RAL volumes vary considerably. This is a consequence of the time lag between commitment and payment rather than a problem specifically relating to a particular EIT activity. The amount of outstanding commitments as of 31 December 2016 was EUR 99.7 million, representing for the most part 2016 grants awarded to KICs for which the final balance will be paid in The year-end RAL amounts have decreased by 6.59% compared to Table Evolution of RAL, EUR Budget Title 2016, EUR 2015, EUR 2014, EUR Change from 2015 to 2016, EUR Change from 2015 to 2016, % 1 Staff expenditure 195, , , , % 2 Infrastructure and operating expenditure 393, , , , % 3 Operational expenditure 99,080, ,207, ,889, ,126, % TOTAL 99,669, ,703, ,769, ,034, % Management information system The EIT used the following software during the 2016 financial year: ABAC Workflow for budget management, budgetary accounting; SAP for financial accounting (general accounting); Datawarehouse for financial reporting; ABAC Assets for fixed asset management; 54

51 MiMa for mission management; EIT grant management system and collaboration platform DUNA for submission of KICs business plans and reports. Reporting Budget execution was reported to the EIT Management on a quarterly basis with deviations from budget execution targets by budget chapters, thereby identifying mitigating actions if and when needed. In addition, the implementation of the EIT Annual Work Programme was continuously monitored. These allowed for corrective actions to be taken where needed to optimise the utilisation of available human and financial resources. Comprehensive budget reports were made available to the organisation on the EIT Intranet. The allocation of financial resources was reviewed once in July and re-allocations were formulated where required Human Resources (HR) Management In 2016, the EIT recruited 15 staff members and one seconded national expert (SNE), which brought the total number of staff to 59 on 31 December 2016 (an increase by nine compared to end-2015) with 6 ongoing selection processes. The EIT has stepped up its efforts to fill the remaining vacant posts and this trend is expected to continue in The recruitment of the EIT staff was in line with the EIT s objectives and priorities as outlined in the Multi-annual Staff Policy Plan of the Institute. In terms of job screening, the majority of posts belong to the operational or neutral activities (70%), whereas the administrative support and coordination roles correspond to 30% of all posts. In total, 37 out of 63 posts have been identified as operational (59%), while 7 posts have been categorised as neutral (11%). In addition, 8 posts (13%) are classified in the coordination category and 11 posts belong to the administrative support role (17%). In terms of legal basis, the implementing rules on implementation of telework at EIT were adopted, as well as the revised implementing rules on working time and part-time work. In addition, rules on reclassification of both Temporary Agents and Contract Agents were adopted. The Governing Board has also approved the implementing rules concerning leave on personal grounds and unpaid leave for Temporary and Contract Agents. In the area of learning and development, in order to offer benefits to the individuals and the organisation as a whole, in-house training sessions on Ethics & Integrity, Fraud prevention and detection, Project management, Key Performance Indicators, Horizon 2020 on Financial Management and Audit, Data protection and Hungarian language courses were organised, in addition to a team building activity and courses attended individually by staff members on external locations. The positive developments in 2016 concerning staff turnover (2015: 17%, 2016: 13%) and vacancy rates (2015: 17%, 2016: 6%) do not negate the fact that EIT is structurally understaffed. As confirmed by the European Court of Auditors in their Special Report No 4/2016 on the EIT, the amount of grant managed per person at the EIT is significantly higher than for any other EU research grant programme. While the budget managed per staff member under FP7 was between 12.5 and 20.4 million euro, the EIT project officers manage annual grants up to 90 million euros. This is without considering the monitoring of the complementary funding of KICs as the EIT finances a maximum of 25% of a 55

52 KIC s budget. The resulting high workload and responsibility has a serious effect on staff turnover affecting the core business of the EIT. While the EIT managed three Knowledge and Innovation Communities (KICs) from 2010 to 2014, two new KICs started their operations in 2014 and a further one has been designated in The amount of grant managed by the EIT has increased from 16 million euros (2010) to 300 million euros (2017), while the number of beneficiaries (KIC Partners) has increased from 73 (2010) to more than 900 (2016). Furthermore, the EIT s budget will increase to more than 400 million euros in 2018, which will naturally lead to additional work to ensure legality and regularity of transactions and compliance with the principles of sound financial management. In addition, the EIT has taken on board new activities to develop its strong innovation potential, related to the preparation for an Impact Fund to support KICs Financial Sustainability and attract funding for the EIT and its KICs under the European Fund for Strategic Investments (EFSI) and invest further into innovative companies, the EIT Regional Innovation Scheme for areas in Europe with lower innovation capacity and outreach and synergies with other programmes such as the EIT s cooperation with the Joint Research Centre and Copernicus programme. Following its education review, the EIT also has identified further potential for it to lead the transformation of human capital in Europe and contribute to the skills agenda in the areas of entrepreneurship and innovation. The EIT will not be able to take these new tasks, which were not foreseen in the initial establishment plan of the EIT, further without additional resources. The number of posts available to the EIT has not followed the significant growth of budget and activities (see chart below). EIT budget managed vs EIT staff authorised EIT budget managed (MEUR) EIT staff (authorised) 56

53 2.5 Assessment by Management This section reports on and assesses the elements identified by management that support assurance on the achievement of the internal control objectives. In order to ensure control effectiveness as regards legality and regularity, the EIT has set up internal control processes intended to ensure the adequate management of risks relating to the legality and regularity of the underlying transactions. The control objective is to ensure that EIT has reasonable assurance that the total amount of any financial operation authorised during the reporting year which would not be in conformity with the applicable contractual or regulatory provisions does not exceed 2% of the authorised payments. Ex-ante verification In compliance with the EIT Financial Regulation, ex-ante verification was carried out on all financial transactions (commitments, payments, recoveries etc.) by the EIT staff member designated to perform this task. Errors detected during these checks were documented on a checklist and corrected before the transaction was approved. This contributed to the sound financial management of the EIT budget and the legality and regularity of the financial transactions. As stated above, the EIT has been partially financially autonomous since June 2011, which means that the EIT s partner Directorate-General at the European Commission (DG EAC) continued supporting the EIT, by way of ex-ante verification of all KIC grant transactions and also of high-value procurements carried out by the EIT exceeding EUR 60,000. These prior consultations provided a second level of assurance for the Authorising Officer. Ex-ante measures applied to grant transactions The EIT consistently carries out ex-ante verification of both commitment and payment transactions. In 2016, numerous guidelines were made available providing detailed instructions to KICs, for example Guidelines on the preparation of KIC Business Plans and Budgets (Grant Agreements 2017), Guidelines for the preparation of KIC Reports (Grant Agreements 2015) and guidelines for the EIT funded part of KIC management costs. The EIT became part of the Horizon 2020 programme as from January 2014 and therefore became part of the H2020 Participant Guarantee Fund which is an additional overall financial risk mitigating measure. The methodology for certificates on financial statements is fully aligned with H2020 and it is stipulated in annex of the Grant Agreement. In 2016, final balance payments were executed thereby closing grant agreements for The EIT performed the technical and financial assessment of all final reports to assess the adequacy of the implementation of Business Plans and to establish the final balances due. In line with its revised and improved grant assurance strategy, the EIT combined its sources of assurance by either performing a desk check on a sample of supporting evidence and/or by requesting Certificates on the Financial Statement (CFS) by independent auditors. All exceptions and weaknesses identified by the CFS auditors were followed up with the KIC during the ex-ante assessment process, which led either to the acceptance of the costs reported following the receipt of further supporting evidence, or alternatively corrections being made by the EIT. After examining the CFSs issued by the auditors, the EIT carried out an analytical review of information received as part of the cost reports. When deemed necessary, follow up questions and requests for supporting documentation were sent to the KICs in the framework of the ex-ante assessment process. Starting from the 2016 EIT-KIC Grant Agreements, EIT will procure the CFSs centrally instead of obtaining them through KIC Partners, thereby reducing the auditing and administrative burden on KICs, while increasing the level of assurance obtained at the same time 57

54 Furthermore, the EIT carried out a pilot monitoring activity on the procurement procedures of EIT InnoEnergy and made targeted recommendations for improvement in this historically error-prone area. EIT InnoEnergy implemented the recommendations in 2016, revised its procurement policies and procedures and provided training to its staff in charge of procurement, which will lead to an increased assurance starting from Similar monitoring activities will be conducted for all other KICs in Finally, the EIT introduced principles of good governance in the new Framework Partnership Agreements signed in Compliance with these principles is monitored on a continuous basis. Details of the expenditure/partner coverage for first-wave KICs 2015 grant are shown in the following table: EIT Digital EIT InnoEnergy EIT Climate KIC Total EIT grant request (EUR) 66,791,565 67,987,470 87,181, ,960,168 EIT grant approved and paid (EUR) 66,757,297 67,295,082 85,084, ,136,881 EIT grant approved and paid (% of grant 99.9% 99.0% 97.4% 98.7% requested) EIT grant covered by CFS (EUR) 58,162,777 54,728,205 74,408, ,299,566 EIT grant covered by CFS (%) 87.1% 80.5% 85.3% 84.4% Number of partners / linked third parties claiming EIT grant Number of partners / linked third parties covered by CFS % of partners / linked third parties covered by CFS 41.0% 14.4% 25.3% 23.9% Details of the expenditure/partner coverage for second-wave KICs start-up grants are shown in the following table: EIT Health EIT Raw Materials Total EIT grant request (EUR) 3,298, ,822, ,121, EIT grant approved and paid (EUR) 3,298, ,815, ,114, EIT grant approved and paid (% of grant 100.0% 99.8% 99.9% requested) EIT grant covered by CFS (EUR) 1,398, ,465, ,863, EIT grant covered by CFS (%) 42.4% 64.5% 54.3% Number of partners / linked third parties claiming EIT grant Number of partners / linked third parties covered by CFS % of partners / linked third parties covered by CFS 8.7% 13.0% 10.9% As a result of the ex-ante verification procedures described above, the EIT rejected costs that had not been supported by sufficient and appropriate evidence and reduced the EIT grant paid accordingly. Taking into consideration the high coverage and the generally good quality of CFSs, combined with the analytical review carried out by the EIT, it can be 58

55 concluded that the assurance provided by the EIT ex-ante assessment as regards the legality and regularity of expenditure is reasonable. Ex-post verification of grants To obtain reasonable assurance on the legality and regularity of the expenditure reported by the KICs and with a view to detecting and correcting errors, the EIT has developed and implemented an ex-post audit strategy. This complements ex-ante controls embedded in the KICs grant management processes. Ex-post audits of cost reports relating to EIT-KIC grant agreements are performed by an external service provider selected using a Framework Contract of the European Commission. The audit methodology has been devised by the EIT and the external audit service provider carries out on-the-spot audits based on the audit programme provided by the EIT and reports on the results. KIC Partners to be audited are selected by the EIT primarily on the basis of risk assessment to maximise the efficiency of the resources spent on ex-post audits, while a certain part of the sample is selected randomly to increase the representativeness of the sample. Ex-post audits of cost reports related to Grant Agreements 2015 were performed by an external service provider on the basis of the Framework Contract of the European Commission. In accordance with the audit methodology devised by the EIT, the 28 KIC Partners audited (11 for EIT Climate KIC, 11 for EIT InnoEnergy and 6 for EIT Digital) were selected by the EIT primarily on the basis of a risk assessment in order to maximise the efficiency of the resources spent on expost audits. The risk-based audit sample was complemented by a random sample in order to ensure a more representative coverage of KIC Partners over the duration of the Framework Partnership Agreements. The external audit service provider carried out the on-spot audits based on the audit programme provided by the EIT and reported the results to the EIT. The process was completed in May The audited grant covered 17% of the total grant paid for the Grant Agreements As a result of the ex-post audits, the detected error rate equals to 1.18%. The residual error rate after ex-ante and ex-post controls is 0.98%. As the residual error rate of 0.98% is below the materiality level of 2% established in the EIT s control strategy, the EIT considers that grants paid as part of 2015 Grant Agreements are free from material errors. Exception reporting, analysis of internal control weaknesses or control failures recorded In 2016, the EIT followed its standard operating procedure on exception reporting. All instances of overriding controls or deviations from established processes and procedures are documented in exception reports. Instances of noncompliance events are documented in non-compliance reports. In 2016, three exception reports and twelve non-compliance events were recorded. The total value of the exception and non-compliance events amounted to EUR 5,654,245 (2015: EUR 7,140,586). However, EUR 5,500,000 representing 99.7% of the total value, related to a single event. This particular event relates to an administrative delay of the legal basis that has been corrected in The exception reports for 2016 addressed administrative delays occurred for grant agreement amendments, FDI extensions and procedures regarding simplified costs used by KICs. The non-compliance events for 2016 mainly concerned administrative errors for budgetary and legal commitments. 9 The exception report refers to the application of simplified cost for Grant Agreements 2015, while the approval of the related EC decision was yet ongoing. The related decision was approved in December

56 Mitigating measures have been put in place to address the internal control weaknesses identified in the exception reports and non-compliance events registered during For instance, the EIT continuously updates and improves its financial circuits, workflows, checklists and routing slips. Fraud prevention and detection In order to reinforce a strong anti-fraud culture and actively encourage dedicated fraud prevention actions designed to the specifics of the EIT s activities, the EIT has developed an Anti-Fraud Strategy for the period of , having regard to the costs and benefits of the measures to be implemented. As a result, the EIT Anti-Fraud Strategy and the related action plan were adopted by the EIT Governing Board on 9 November This Anti-Fraud Strategy is part of the EIT s internal controls system and meets the requirements of Article 48 of the Framework Financial Regulations of the European Commission, which refers inter alia to the need of preventing and detecting irregularities and fraud. It is valid for three years and will be updated in the course of its implementation - if necessary - or after its assessment, at the end of the implementation period. As part of the activities to implement the EIT's Anti-Fraud Strategy, an internal survey on antifraud knowledge among the EIT staff was launched in November 2016, benchmarking the antifraud awareness; a mandatory in-house training anti-fraud was organised for all staff in December In this regard, basic training sessions in the field of fraud prevention and detection for newcomers (EIT staff, trainees, interim staff, members of the Governing Board of the EIT and KICs representatives) were also organised in 2016; an annual assessment on conflict of interest situations for members of the EIT Governing Board was performed at the beginning of 2016 and related mitigating measures were identified and implemented when required. Furthermore, an assessment on the conflict of interest exercise 2016 regarding the members of the EIT Governing Board for the Business Plan 2017 and KIC Call 2016 was conducted in September-November Different in-built mitigating measures for risks related to the financial allocation to the KICs for 2017 were identified and implemented. 2.6 Assessment of audit results during Internal Audit Service (IAS) The IAS carried out an audit on the 2014 call for KIC proposals in April Following an adversarial procedure, IAS issued a final audit report in January Although no critical or very important recommendations were made, IAS recommended some improvements for the selection procedure to be used in the 2016 Call for KIC proposals. The EIT set up an action plan that was accepted by IAS as appropriate. Throughout 2016, the EIT has implemented all of the actions as part of the process of the 2016 Call for KIC proposals. IAS carried out a second follow-up audit in October 2015 to review the implementation of actions stemming from the limited review performed by IAS in In the follow-up audit report issued in January 2016, the IAS confirmed significant improvement in the EIT procedures and closed most of the open recommendations with the exception of three actions out of the original 25. During 2016, the EIT has implemented the remaining three actions as well. Therefore, EIT has implemented all 25 actions based on recommendations from the Internal Audit Service, thereby improving the grant management procedures significantly. 60

57 Furthermore, IAS carried out an audit in April 2016 on Transition to Horizon The audit covered the legal transition to the Horizon 2020 rules and regulations as well as the Start-up Grants provided to the two second-wave KICs designated in The final audit report was issued in December 2016 with three recommendations (none of them being critical). The EIT has accepted the recommendations and set up an action plan that has been accepted by IAS as appropriate. The EIT will implement the actions in Internal Audit Capability (IAC) Annual Audit Plan 2016 The IAC sent its draft 2016 Annual Audit Plan, prepared on the basis of a risk assessment update, to the EIT Audit Committee and EIT Interim Director for comments on 16 December The EIT Governing Board approved the plan on 17 February Execution of the plan In line with its Annual Audit Plan, the IAC carried out three assignments in 2016, including an Audit on Information Technology (IT), a consultancy on potential efficiency gains in the field of Human Resources Management (HRM) and a follow-up to past consultancy assignments. During its assignments, the IAC issued 41 new recommendations in 2016, including 8 rated as very important, 11 as important and 22 as desirable. The EIT s management has accepted all recommendations resulting from the 2016 IAC assignments. The Audit on IT was finalised on 15 December The scope included IT governance, IT security, IT services, IT project management and data management. The audit concluded that the internal control system in place provides reasonable assurance regarding the achievement of the business objectives set up for IT, except for the following very important issues: 1. Disaster Recovery Plan; 2. IT security; 3. Dependence on supplier; 4. User account management; 5. IT project management and 6. Data management. Management accepted all recommendations and drew up an action plan to address the above weaknesses. The consultancy on efficiency gains in HRM was finalised on 1 September 2016 and contained twenty recommendations. Two that were rated as very important concern the documentation of HR procedures and overview of applicable rules as well as the HRM strategy. Management accepted all recommendations and drew up an action plan to address the above weaknesses. The scope of the 2016 follow-up included 43 recommendations stemming from the following six IAC assignments: 2014 consulting on Vacancy Management, 2014 consulting on Procurement, 2014 letter to management on Treasury Function, 2014 letter to management on Management of Sensitive Functions, 2014 consulting on the Management of the risk of Conflict of Interests and a 2015 letter to management. Out of 43, the IAC closed twelve recommendations, including four rated as very important. Furthermore, taking into account the reduced risk, a critical recommendation has been downgraded to very important. Key Performance Indicators (KPIs) 61

58 The KPIs for the Internal Audit Capability were set by the decision of the EIT GB adopting the 2016 Annual Work Program for the EIT as follows: Indicator (as per AWP) Target (as per AWP) Comment Timely preparation of the IAC audit plan Timely production and transmission of the IAC audit reports Audit plan adopted by the EIT GB by March 2016 Submission of the reports to the Director and to the Governing Board by end-2016 Target achieved. Target achieved European Court of Auditors (ECA) Financial (discharge) audit on year 2015 The ECA issued a qualified opinion on the EIT s 2015 accounts on the basis that all the transactions underlying the annual accounts are legal and regular in all material respects, except for one specific issue relating to the use of indirect cost rates for universities, research organisations and SMEs in the 2014 grant agreements. The ECA was of the opinion that EIT was not allowed to reimburse indirect costs of these organisations based on a 40% flat rate, as was the rule and practice from 2010 to 2013, but should have used a 25% flat rate starting from 2014, as established in the new rules approved in December The EIT and European Commission disagreed with the Court s interpretation of the applicable legal basis and did not accept that the EIT had made irregular payments to KICs. The Horizon 2020 legal basis explicitly provides for transitional measures, which were fully applicable to the EIT as of 1 January 2014, since the EIT is an integral part of Horizon Consequently, in the opinion of the EIT, payments based on a 40% flat rate to reimburse the indirect costs of universities, research organisations and SMEs were legal and regular under the 2014 grant agreements. The ECA considered that the EIT should not have applied transitional arrangements as these arrangements did not apply to the Institute. However, the EIT launched the 2014 grant allocation process in spring 2013, when the new rules were not yet known. Therefore, the EIT considered it necessary and justified to apply the transitional provisions provided for. It is also important to note that this was a one-off issue applicable for the transitional year of 2014 only (transition to Horizon 2020). Starting from 2015, the EIT has used the 25% flat-rate for indirect costs as stipulated in the Horizon 2020 regulation. The EIT and DG Education and Culture requested formally the legal opinion of the Legal Service of the Commission and the Budgetary Control Committee of the European Parliament asked for the legal opinion of the European Parliament s Legal Service as well. Both legal opinions supported the interpretation of the EIT as regards 2014 grant agreements. Based on the positive legal opinions, the Budgetary Control Committee voted in favour of granting discharge to the EIT in respect of the implementation of the 2015 budget in March Finally, the European Parliament granted discharge following a vote in the plenary session on 27 April Financial (discharge) audit on year

59 The European Court of Auditors carried out two audit missions at the EIT in the context of auditing the EIT s annual accounts for the financial year The second audit mission took place in April 2017 and the final audit report is not available as of finalising the present Annual Activity Report. The European Court of Auditors preliminarily reported certain irregular payments related to procurement procedures carried out by KIC Legal Entities in The preliminary observations of the European Court of Auditors may have an impact on the final error rate reported by the Court for year 2016 but are subject to a legal analysis and a contradictory procedure at the time of writing this report. Performance audits In 2016, the European Court of Auditors published two Special Reports affecting the EIT. Special Report No 4/2016 titled The European Institute of Innovation and Technology must modify its delivery mechanisms and elements of its design to achieve the expected impact was published on 14 April The EIT, KICs and Commission agreed on a detailed action plan to address the Court s recommendations and this action plan was endorsed by the EIT Governing Board in its meeting on 2 June The EIT has already implemented more than 50% of the actions stemming from the recommendations of the ECA Special Report and is on track to implement the rest by the deadlines set. The key actions implemented are as follows: Amendment of the EIT Regulation removing the 25% funding condition: The EIT Governing Board agreed on the main changes in the EIT Regulation and the EIT sent its formal request to Commissioner Navracsics in February The Commission has launched the legislative procedure accordingly. Measuring leverage: A new KPI system focussing on results and impact, including investment attracted by ventures that have received KIC support, was introduced in 2016 and is used as from Business Plans KICs financial sustainability reporting has been mainstreamed in the grant reporting process as from the 2016 grant agreements. Early signature of Grant Agreements: As a result of a simplified process and efforts by both EIT and KICs, Grant Agreements 2017 were signed and a 70% pre-financing was paid by EIT in February 2017, thereby reducing significantly the time-to-grant. EIT financial autonomy: The EIT completed its self-assessment in 2016 and a Commission fact-finding visit took place in January The decision of the European Commission is foreseen for Rules tailored to the KICs needs: Special IPR and liability rules have been included in the new Framework Partnership Agreements signed in Eligibility of capital expenditure for KIC Legal Entities and Co-location Centres has been included in the 2017 grant agreements. Simplified costs have been developed and adopted by the Commission for the KICs education activities. Multi-annual Grant Agreements: Following a detailed legal and technical analysis, involving the Commission (DG Education and Culture and DG Budget), the EIT and KICs decided jointly that introduction is not feasible in 2018 due to major operational constraints and lack of real added value. However, a pilot for will be further explored. Pre-condition for a genuine multiannual cycle is the possibility of committing grants which could cover costs of activities for multiple years. This is not possible under the current EU multiannual financial framework; however, it should be possible to implement for the post-2020 period, provided that commitment appropriations for the EIT budget can be allocated in multi-annual tranches accordingly. 63

60 EIT staffing: The EIT has essentially reached full staffing (59/63 at year-end 2016) following a series of measures taken to reduce staff turnover (e.g. appraisal and reclassification system in place) and to improve the efficiency of selection/recruitment procedures. Single audit approach: Under the 2016 grant agreements, EIT procured the Certificates on Financial Statements (CFS) instead of KIC Partners, thereby reducing the auditing and administrative burden on KICs, while increasing the level of assurance obtained at the same time. The remaining actions all on track and are being implemented jointly by EIT and KICs. Special Report No 12/2016 Agencies use of grants: not always appropriate or demonstrably effective was published on 21 April The audit concluded that agencies audited, including the EIT, in general awarded and paid grants in compliance with the rules. However, the Court has made five recommendations to all agencies for improvements in the way agencies manage grants. The EIT has accepted the relevant and applicable parts of all five recommendations and has implemented them as follows. Simplified costs have been established and adopted by the Commission in 2016 for the KICs education activities. The EIT has included in its Single Programming Document , containing the Annual Work Programme 2017, information on the KICs objectives and expected results for The EIT has established formal internal procedures for the selection and designation of KICs as well as for the annual allocation of EIT contribution to established KICs respecting the principles of transparency and equal treatment and safeguarding against potential conflicts of interest. The EIT has strengthened its ex-ante verifications on grant implementation (e.g. centralised procurement of Certificates on Financial Statements, etc). The EIT has introduced a new set of results-oriented KPIs. 2.7 Follow up of IAC recommendations and action plans for IAC audits The IAC issued eight very important recommendations in 2016, six resulting from the audit on IT and two from the consulting assignment on human resources management. All eight recommendations have been accepted by the EIT Management and are being implemented in No critical recommendations have been issued in As regards the status of implementation of critical and important recommendations from IAC audit reports issued in previous years, seven critical and eight very important recommendations are in progress to be implemented by the end of The open recommendations relate to the risk management process, document management and monitoring of activities. 2.8 Follow up of observations from the Discharge authority In response to the European Parliament decision of 28 April 2016 on discharge in respect of the implementation of the budget of the EIT for the financial year 2014, the EIT informed the Discharge Authority of follow-up actions taken 64

61 and progress made in respect of observations made by the European Parliament on 14 October In particular, the following actions have been taken in order to address the observations of the European Parliament. Concerning the emphasis of matter paragraph in the Court s audit report on the EIT s accounts for 2014, the EIT obtained audit certificates on costs of KIC complementary activities incurred in by 31 March 2015 and compliance with the 25 % ceiling set out in the Framework Partnership Agreements has been verified on the basis of final figures. On the basis of the audit evidence collected on KIC complementary activities, the EIT has confirmed that the EIT funding provided to the three KICs in years has not exceeded the 25% ceiling set out in the EIT-KIC Framework Partnership Agreements. As regards budgetary and financial management, the EIT has reduced its carry-overs to a minimum (EUR 350k in 2015) and to planned carry-overs only (i.e. invoices received in January for services provided in December Year N-1). As regards grants, the EIT is actively using its derogation to optimise the implementation of the EIT budget. The operational activities of the KICs, such as Masters and Doctoral education programmes or long-term research and innovation support projects, are by nature multiannual and this is reflected by a derogation specific to the EIT. This allows the EIT to re-enter any cancelled appropriations into its budget in the following three years. This derogation is designed to optimise the implementation of the EIT s budget, which is mainly used for grants provided to the Knowledge and Innovation Communities. This provision also reflects that support for innovative actions can by nature not be linearly planned, i.e. there has to be flexibility to stop innovative projects that do not work or to redirect them. Innovation activities carried out by the KICs are dynamic and fast-reacting in nature. Certain innovation projects or plans that are included in the KICs Business Plans, and therefore in the grant agreements, may turn out to have less potential than expected and have to be cancelled during the implementation of the grant agreements. The EIT can also report an advanced stage of implementation of performance based and result-oriented budgeting as well as the use of key performance indicators in performance measurement. A major part of the EIT budget, around 95%, is implemented by the KICs through grants. Up to 50% of the grants are allocated performance-based as a result of a competitive funding allocation process, and one of the two pillars of the funding allocation process measures the past performance of the KICs using key performance indicators. This methodology will be maintained and further improved in the coming years and the EIT will allocate an increasing share of its budget to KICs fully based on performance via the competitive funding allocation process. In respect of the recommendation of the European Parliament to consider a tighter schedule of reductions in the maximum of the Institute s contribution to a KIC, the following is worth noting. While the EIT Regulation allows the EIT contribution to cover up to 100 % of the total eligible costs of KIC added-value activities, and the Principles on KICs Financial Sustainability, adopted by the EIT Governing Board, foresee a reduction in this maximum rate only after 10 years from a KIC s designation, KICs already provide substantial co-funding to finance their KIC added-value activities. As regards the EIT-KIC Grant Agreements 2015, i.e. in the sixth year of their operations, the three first-wave KICs (Climate-KIC, EIT Digital and KIC InnoEnergy) provided a co-funding of almost 24 million euro, which covered approximately 10% of the costs of their KIC added-value activities. This co-funding rate has been on an increasing trend and it is expected to achieve 20% earlier than year 10 of the operations of the first-wave KICs. Furthermore, the EIT continues to monitor the KICs progress towards financial sustainability and held a workshop with KIC CEOs in June As a result of the workshop, targeted recommendations were made to KICs in order to strengthen their financial sustainability strategies and actions. In addition, the EIT will carry out a 7-year review with a particular focus on the implementation of the first-wave KICs financial sustainability strategies in

62 As regards the EIT s procurements, in addition to the reinforcement of the procurement team, the EIT has developed a comprehensive Vade-mecum on procurement including checklists for different procurement procedures and specific contracts under framework contracts. In line with the Code of Conduct adopted for EIT Governing Board members, the annual declarations of interests and independence of EIT Governing Board members have been published on the EIT website. The EIT has also published on its website the declaration of interests of the EIT Interim Director and Heads of Unit (i.e. senior manager and middle managers). The level of detail in the technical assessment of the implementation of KIC activities has already improved significantly in comparison with previous years. As a result of improved guidance provided by the EIT to the KICs, Business Plans for 2014 and onwards provide significantly more details on each planned KIC added value activity. Moreover, a more robust methodology is now in place to assess the KICs performance based on the reporting. The European Court of Auditors has accepted this action as completed during their audit of the EIT s accounts for the financial year The EIT has continued to work towards realising efficiency gains with other institutions. In addition to the existing cooperation with CEPOL, another EU agency based in Budapest, the EIT has signed a Memorandum of Understanding with ERCEA, the European Research Council Executive Agency, in order to share the use of their budget planning tool and paperless payment workflow system. In order to reduce costs in the area of public procurement, the EIT participates in a number of inter-institutional procurement procedures of the European Commission and of other agencies. Furthermore, the EIT uses several of the Commission's framework contracts for ordering services in order to achieve efficiency gains in its procurement activities. The follow-up to other observations of the Discharge authority, such as on EIT staffing and implementation of internal audit recommendations, are reported in Part II of this report above. 66

63 PART III ASSESSMENT OF THE EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEMS 3.1. Risk management EIT uses the principles and main elements of the European Commission's risk management methodology. In light of the risk associated with the EIT s activities, the risk management exercise is performed yearly, covering all EIT activities. The EIT revised and updated its Standard Operating Procedure on Risk Management, which is now fully in line with the applicable guidance of the European Commission. The 2015 risk register review identifying the most significant risks in the EIT s register was followed up in The EIT risk register follows the template recommended by the Commission and risks are categorised on the basis of the Commission risk typology. The EIT risk register contains the actions planned to address the risks, including who should perform them as well as the target dates for completion. The implementation of the action plan was monitored throughout 2016 to ensure it continued to be effective and relevant. To this end, the EIT risk register and action plans are reviewed by the EIT Management on a regular basis and in particular as part of the preparations of Annual Work Programmes and Annual Activity Reports. Moreover, in 2015, the EIT Interim Director put in place a consolidate audit register, which is reviewed on a quarterly basis and maps all outstanding audit recommendations with deadlines and actions required to address them. As the grants awarded to the KICs represent the largest share of EIT s operational budget (above 90%), an adequate identification and management of the risks associated with the KICs planning and implementation of their Business Plans is crucial. The revised EIT grant assurance strategy in particular contributes to the improved assurance in this critical area (see more details in Section ). Specific risks associated with the management of grants are at the level of the EIT and KICs. At the level of KICs: Inherent risks linked to the multiplicity of organisations and systems, involved in diverse operations; Inherent risks related to the relationship between the KIC LE and its partners and the governance of KICs; Inherent risk deriving from the start-up phase of new KICs; Inherent risk deriving from the complexity and nature of KIC added-value activities; Risks related to the fact that the quality and accuracy of the certificates on financial statements produced by external parties is not always satisfactory; Risks related to the transition to the new Framework Partnership Agreement and rules of Horizon At the level of the EIT: Risks related to the reliability of the KICs internal control systems; Risks related to the limited staff capacity at the EIT and the relatively high staff turnover. 67

64 These risks have been mitigated by: Guarantees built into Grant Agreements provisions; Continuous guidance provided to KICs in terms of performance and financial matters, including improved Business Plan and Reporting guidelines; Close follow-up of the implementation of the KICs added-value activities; Ex-ante verifications such as the assessment of performance and cost reports; Ex-post verifications; Development of a comprehensive monitoring strategy, an annual monitoring plan and reviews on priority issues; Increase of EIT staff capacity; Establishment of a process to review, update and improve all EIT procedures; Task Force for Simplification developing measures to improve efficiency and effectiveness of grant management; Principles of good governance included in the Grant Agreements 2015 and in the new Framework Partnership Agreements 2016; Preparations of a new Framework Partnership Agreement with KICs. For further details on risk mitigating actions implemented in 2016, please, refer to Annex VII Compliance and effectiveness of Internal Control Standards (ICS) With its Decision No 3/2010, the EIT Director decided to apply the prevailing Internal Control Standards applicable to the European Commission, which is based on international good practice. The EIT s main objective is to maintain the appropriate balance between the risks to be addressed and the controls required for minimising the risks. EIT has put in place the organisational structure and the internal control systems suited to the achievement of the control objectives, in accordance with the standards and having due regard to the risks associated with the environment in which it operates. In conclusion, the internal control standards are effectively implemented with the exception of certain areas where further improvements are under way. These concern in particular the further improvements needed in the areas of grant management, internal procedures and staff capacity as outlined in the below table. As adequate mitigation actions are under way, the remaining weaknesses do not qualify for a reservation in the annual declaration of assurance. 68

65 No Title Description of weakness and risk Potential impact Mitigating action under way 1 Grant assurance and EIT staff resources Grant management at the level of KICs is controlled by the EIT s grant assurance strategy. However, in the past a number of weaknesses and errors have been detected in the financial and operational reports by KICs. This has led the Court of Auditors to issue a qualified opinion on the legality and regularity of transactions at the EIT for the financial years 2012 and 2013 and Despite various measures taken to improve the management and control systems of KICs, error rates have remained at a level close to 2%. In this context, the EIT will not be able to significantly reduce the level of error rates in the future for the following reason: - New KICs are being created and although they take on board lessons learnt, at least during the early stages of a KIC life cycle when it is being set up and until it reaches full maturity, errors due to learning processes and time required to set up control systems are likely to occur. - Innovation activities are inherently risky and have an in-built The three risk factors mentioned taken together (KIC management and control systems, inherent risk in innovative activities and EIT staffing constraints) will mean that there is a high likelihood of qualified opinions by the European Court of Auditors in the future. This can in turn lead to the fact that the European Parliament may not grant the discharge to the EIT and reputational damage occurs, which prevents the EU from supporting the EIT with the necessary resources to reach its ambitions and objectives. With the same number of resources and in the light of an increase in its budget and number of KICs, the EIT cannot increase its checks and controls and maintain low error rates without reducing other operational activities. Significant steps have been taken by the EIT to address the errors and identified weaknesses and the control systems are improving, as confirmed by the unqualified audit opinion of the European Court of Auditors for the financial year 2014 and the discharge granted by the European Parliament in 2015 and The revision of the EIT grant assurance strategy, the implementation of the good governance principles for KICs and implementation of the recommendations of a targeted review of KICs procurement procedures in 2017 and various other measures leading to efficiency gains have further contributed to reach and maintain a relatively high level of assurance and low error rate. With the support of the Commission and the EIT Governing Board, the European Court of Auditors will be requested to compare the error rates and work of the EIT with other Research and Innovation programmes of Horizon 2020 rather than with other EU Agencies that may have a different operational risk profiles (e.g. due to not managing grants) 69

66 likelihood of failure and require flexibility. They cannot be planned and delivered with the same level of risk as other programmes. A higher level of errors and exceptions is therefore part of the operations and has to be accepted. - EIT staff capacity remains limited due to the structural understaffing of the EIT, which is recognised by its Governing Board, the Commission and the Court of Auditors. However, requests for the EIT to significantly increase its staff capacity beyond the foreseen posts allocated in the current financial perspective have been declined. This means that the level of control and checks, and subsequent assurance that can be reached may be lower than that of other EU programmes and Agencies, which have more adequate staffing compared to the budgetary amounts and operational complexity of programmes managed. and consequently lower error rates. The European Commission will be asked to address the structural understaffing of the EIT and provide for more resources in the establishment plan. Without adequate resources, the EIT may not be in a position to deliver fully on some operational activities, as it will have to focus ever more resources on grant assurance considering that the EIT faces an increasing budget and number of KICs to manage. The EIT will take a series of measures to further increase its capacity outside of the establishment plan, for example through an increased use of interimaire staff, trainees and external experts. 70

67 PART IV MANAGEMENT ASSURANCE 4.1 Review of the elements supporting assurance The information reported in Parts II and III derives from the results of the management supervision of activities and audit observations contained in the audit reports listed. These reports are based on a systematic analysis of the evidence available. This approach provided sufficient guarantees as to the completeness and reliability of the information reported and ensures a complete coverage of the EIT budget. In conclusion, the management has reasonable assurance that, overall, suitable controls are in place and working as intended; risks are being appropriately monitored and mitigated; and necessary improvements and reinforcements are being implemented. The Interim Director of the EIT, in his capacity as Authorising Officer has signed the Declaration of Assurance. Nevertheless, as indicated in section 3.2 above, there is an inherently higher risk level of the EIT that can only be addressed through the full implementation of mitigation measures. As some of these measures are under the control of other institutions than the EIT, the EIT Interim Director cannot reduce these risks to an acceptable level and fully ensure that the EIT reaches its objectives without the indicated measures being implemented by these institutions. Furthermore, as reported in section above, the preliminary observations of the European Court of Auditors may have an impact on the final error rate reported by the Court for year 2016 but are subject to a legal analysis and a contradictory procedure at the time of writing this report. 4.2 Overall conclusion on assurance The information reported in Parts II and III does not result in any major issues meriting a reservation. The main remaining weaknesses were identified in the previous chapter. 71

68

69 ANNEXES 73

70 Annex I: Validated EIT core KPIs (Grant Agreements 2015) EIT core KPI EIT Digital Climate-KIC EIT InnoEnergy 1 Attractiveness of the education programs: EIT Labelled Ratio: applications for 400 seats Ratio: applications for 141 seats Ratio: applications for 259 seats 2 Number of graduates: EIT labelled degrees Business ideas incubated Start-ups/Spin-offs created 3 start-ups and 5 spin-offs 37 start-ups and 1 spin-offs 23 start-ups and 0 spin-offs 5 Knowledge Transfer and Adoption 57 transfer and 136 adoption 57 transfer and 25 adoption 5 transfer and 48 adoption 6 New or Improved Products/Services/Processes 18 new and 6 improved 38 new and 14 improved 14 new and 2 improved 74

71 Annex II: Statistics on financial management Breakdown and changes in commitment and payment appropriations per chapter: 75

72 Appropriations adopted, EUR Modifications (transfers and AB), EUR Re-entered, EUR Assigned revenue, EUR Total, EUR Staff in active 11 employment 3,843, , ,415, Recruitment expenses 45, , Mission 250, , , Socio-medical infrastructure 102, , , Training 90, , , External staff and 16 linguistic support 777, , , Representation 4, , , Title 1 - Total 5,112, , ,320, Building and associated 20 costs 128, , , Information and 21 communication 465, , , technology Moveable property and 22 associated costs 62, , , Current administrative 23 expenditure 356, , , Publications, information, studies and surveys 44, , , Meeting expenses 431, , , Title 2 - Total 1,488, , ,093, Grants 253,634, , ,101, , ,964, Knowledge and 31 Innovation Communities 1,375, , ,808, EIT's impact 1,660, , ,161, Chapter Simplification, monitoring and evaluation COMMITMENT APPROPRIATIONS 397, , , Title 3 - Total TOTAL Cancelled appropriations not used in year n Title 4 - Total GRAND TOTAL 257,066, , ,101, , ,369, ,667, , ,101, , ,783, ,012, ,012, ,012, ,012, ,667, ,332, ,101, , ,796,

73 Appropriations adopted, EUR Modifications (transfers and AB), EUR Re-entered, EUR Assigned revenue, EUR Total, EUR Staff in active 11 employment 3,843, , ,415, Recruitment expenses 45, , Mission 250, , , Socio-medical infrastructure 102, , , Training 90, , , External staff and 16 linguistic support 777, , , Representation 4, , , Title 1 - Total 5,112, , ,320, Building and associated 20 costs 128, , , Information and 21 communication 465, , , technology Moveable property and 22 associated costs 62, , , Current administrative 23 expenditure 356, , , Publications, information, studies and surveys 44, , , Meeting expenses 431, , , Title 2 - Total 1,488, , ,093, Grants 271,019, ,090, ,545, , ,169, Knowledge and 31 Innovation Communities 999, , ,420, EIT's impact 1,092, , ,605, Chapter Simplification, monitoring and evaluation PAYMENT APPROPRIATIONS 587, , , Title 3 - Total TOTAL Cancelled appropriations not used in year n Title 4 - Total GRAND TOTAL 273,698, ,554, ,545, , ,384, ,298, ,740, ,545, , ,799, ,520, ,520, ,520, ,520, ,298, ,219, ,545, , ,319,

74 EIT revenue collected, EUR Income line header Var. 2016/2015, % European Union subsidy, EFTA and third party contribution Contribution by the Host Member State Other revenue from administrative operations Surplus, balances 263,554, ,017, ,850, % ,560, ,560, % 4, , , % 7,065, ,564, % Repayment of KICs grants incurred as a result of an ex-post audit 431, , , % TOTAL 271,056, ,412, ,154, % Comparison of budget execution for commitments, EUR Budget Title Staff expenditure 4,164, ,776, ,760, Infrastructure and operating expenditure 973, , ,051, Operational expenditure 244,774, ,536, ,765, TOTAL 249,912, ,120, ,576, Comparison of budget execution for payments, EUR Budget Title Staff expenditure 3,968, ,634, ,337, Infrastructure and operating expenditure 580, , , Operational expenditure 256,803, ,206, ,927, TOTAL 261,352, ,294, ,858, Comparison of committed and RAL amounts for financial years 2013, 2014 and 2015, EUR 78

75 79

76 Annex III: Organisational chart in 2016 Director Accounting Officer Internal Auditor Quality Assurance and Control Legal Assurance COO Services and Finance Partnerships Management Policy and Communications Human Resources Infrastructure and IT First wave KICs Grant Assurance and Finance Policy Support and Stakeholder Relations Strategy and Impsct Legal and Procurement Budget and Finance Monitoring and New KIC management Communications and Dissemination 80

77 Annex IV: Establishment Plan and additional information on Human Resources management Establishment Plan: Category and grade Establishment plan 2016 Actually filled as of 31 December 2016 Officials (n/a) Temporary staff (TA) Temporary staff (TA) AD 16 AD 15 AD 14 1 AD 13 AD 12 AD AD 10 AD AD AD AD AD 5 Total AD AST 11 AST 10 AST 9 AST 8 AST 7 AST 6 AST AST AST AST 2 AST 1 Total AST 5 4 AST/SC 6 AST/SC5 AST/SC4 AST/SC3 AST/SC2 AST/SC1 Total ST/SC 0 0 TOTAL

78 External personnel: Category Authorised 2016 Actually filled as of 31 December 2016 Contract staff (CA) FG IV 8 3 FG III 8 13 FG II 6 5 FG I TOTAL Seconded national Experts (SNE) TOTAL 2 2 a) Information on the entry level for each type of post Key functions Type of Contract (TA, CA) Function group, grade of recruitment Indication whether the function is dedicated to administrative support or operations CORE FUNCTIONS Director (level 1) TA AD 14 Management (both administration and operational) Chief Operating Officer (level 2) TA AD 11 Management (both administration and operational) Head of Unit TA AD9 Management (both administration and operational) Senior Officer TA AD8 operational Officer (Programme) TA/CA AD6/FGIV operational SUPPORT FUNCTIONS Head of Unit Services and Finance TA AD9 administration Head of Section Human Resources TA AD6 administration Head of Section Budget and Finance TA AD6 administration Head of Section Legal and Procurement TA AD6 administration and operational Corporate Communications Officer TA AD5 administration and operational Head of Section IT and Infrastructure TA AD 9 administration Officer (Policy) TA AD6 administration Secretary CA FG II administration and operational SPECIAL FUNCTIONS 82

79 Data Protection Officer (Legal Advisor appointed, not a separate function) TA AD6 administration Corporate Legal Officer TA AD8 administration Accounting Officer TA AD8 administration Internal Auditor TA AD7 Administration b) Result of the job screening exercise (31/12/2016) Job Type and Category Year 2015 Year 2016 ADMINISTRATIVE SUPPORT AND COORDINATION 32% 30% Administrative Support Coordination 8 8 OPERATIONAL 57% 59% Top-Level Operational Coordination 4 4 Programme Management & Implementation Evaluation & Impact Assessment 6 7 General Operational 6 7 NEUTRAL 11% 11% Finance 6 6 Control

80 Annex V: Human and Financial resources by activity Activity TA CA SNE Operational HR 1 Operational exp., EUR 2 Overheads, EUR 3 Total cost (operational exp. and overheads), EUR Consolidating, fostering growth and impact of the KICs 10, , , , ,73 Start up and new KICs , , ,87 Simplification 0, ,5 0, , ,47 Monitoring, impact analysis and evaluation Fostering knowledge exchange trough dissemination and outreach , , , , , ,10 Fostering and attracting talent Enhancing stakeholder engagement Strategy: Coordination and implementation , , , , , , , , ,70 Administrative support , , ,81 TOTAL , , ,69 1 The operational Human Resources consist of the total number of Temporary and Contract Agents directly involved in operations. 2 The operational expenditure is the costs directly involved in the implementation of the projects of the AWP. 3 The overheads are costs indirectly involved in the implementation of the projects of the AWP. These include fixed costs such as salaries, rent, software licences and other similar costs. In addition, overheads include variable costs such as office equipment and supplies, ICT equipment, telecommunication costs and other similar expenses. The total overheads are distributed to each area of activity in proportion to the operational staff employed in each area of activity. 84

81 Annex VI: Specific annexes related to part II a) Budget implementation Revenue Income line Income line header Income appropriation, EUR Entitlements established in 2015, EUR (1) Entitlements established in 2016, EUR (2) Revenue carried over from 2015, EUR (3) Revenue received, EUR (4) Outstanding amounts, EUR ( ) 200 European Union subsidy 252,158, ,158, ,158, Contributions by the EFTA member states 6,875, ,875, ,875, Contributions by third countries 4,520, ,520, ,520, Revenue arising from repayment of amounts wrongly paid 4, , , Other revenue from administrative operations Surplus, balances 7,065, Repayment of KICs grants incurred as a result of an ex-post audit 695, , , , , (assigned revenue) TOTAL 271,319, , ,986, , ,990, Expenditure 85

82 Implementation of the commitment and payment appropriations per budget item (C1) Budget line Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Payment Committe appropriations, EUR d (3) (2/1) Payments made, EUR (4) % Paid (4/3) R A L (2-4) A-1100 Basic salaries including weightings 1,659, ,642, % 1,659, ,642, % - A-1101 Allowances 587, , % 587, , % - A-1102 Employers charges 130, , % 130, , % - A-1110 Remuneration and allowances of contract agents 728, , % 728, , % - A-1120 Termination of service 20, % 20, % - A-1121 Entitlements related to entering the service 100, , % 100, , % - A-1130 Schooling 190, , % 190, , % 9.81 Total 3,415, ,345, % 3,415, ,345, % 9.81 A-1200 Recruitment expenses 45, , % 45, , % - Total 45, , % 45, , % - A-1300 Mission expenses 198, , % 198, , % 20, Total 198, , % 198, , % 20, A-1400 Restaurants and canteens % % - A-1410 Medical expenses 5, , % 5, , % - A-1420 A-1430 Early childhood centre and approved day nurseries Social contacts among staff members 75, , % 75, , % 5, , , % 6, , % 2, Total 86, , % 86, , % 8, A-1500 Training 70, , % 70, , % 20, Total 70, , % 70, , % 20, A-1600 Agency staff 81, , % 81, , % 67, A-1601 Seconded National Expert 55, , % 55, , % - A-1602 Trainees 39, , % 39, , % - A-1603 IT support 171, , % 171, , % 60, A-1604 Administrative assistance 70, , % 70, , % 17, A-1611 Translation 87, , % 87, , % - Total 503, , % 503, , % 145, A-1700 Representation expenses 2, % 2, % - Total 2, % 2, % - TOTAL - Title 1 4,320, ,164, % 4,320, ,968, % 195,

83 Budget line Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Payment Committe appropriations, EUR d (3) (2/1) Payments made, EUR (4) % Paid (4/3) R A L (2-4) A-2000 Renting 6, , % 6, , % A-2003 Water gas electricity and heating 20, , % 20, % 20, A-2004 Cleaning and maintenance 16, , % 16, , % 5, A-2005 Security and surveillance 4, , % 4, % 3, A-2006 Fitting out of premises 2, % 2, % - Total 48, , % 48, , % 29, A-2100 A-2101 Acquisition renting of equipments and software Maintenance and repair of equipments 221, , % 221, , % 103, , , % 176, , % 58, A-2200 Acquisition general, technical equipment Total 397, , % 397, , % 161, , , % 3, % 3, A-2212 Transport cost 1, % 1, % - A-2220 Acquisition of furniture 22, , % 22, , % - Total 26, , % 26, , % 3, A-2300 Stationery and office supplies 9, , % 9, % 9, A-2301 Postage and delivery charges 2, , % 2, , % A-2302 Telecommunication charges 41, , % 41, , % 18, A-2303 Legal expenses and damages 25, , % 25, , % 6, A-2305 Bank charges 3, , % 3, % 1, A-2306 Honoraria for Governing Board Members 200, , % 200, , % 4, A-2309 Other administrative expenses 5, % 5, % - Total 286, , % 286, , % 39, A-2400 Official Journal 2, % 2, % A-2401 EIT publications 3, % 3, % - A-2403 Studies and surveys 10, , % 10, % 8, Total 15, , % 15, % 9, A-2500 Organisation and travel expenses of Governing Board meetings 310, , % 310, , % 149, A-2520 Internal meetings 8, , % 8, , % - Total 318, , % 318, , % 149, TOTAL - Title 2 1,093, , % 1,093, , % 393, TOTAL - Title 1 and Title 2 5,414, ,137, % 5,414, ,548, % 588,

84 Budget line Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Payment Committe appropriations, EUR d (3) (2/1) Payments made, EUR (4) % Paid (4/3) R A L (2-4) B3-000 KIC Grants 254,167, ,878, % 254,929, ,145, % Total 254,167, ,878, % 254,929, ,145, % B3-111 Planning, reporting and audits 1,537, ,482, % 1,013, , % B3-112 Knowledge Triangle Integration 71, , % 71, , % B3-114 New KICs 200, , % 336, , % Total 1,808, ,651, % 1,420, ,142, % B3-202 Communications and Dissemination 811, , % 803, , % B3-203 Alumni 250, , % 150, , % B3-204 Stakeholder relations 85, , % 591, , % B3-205 Awards 15, , % 61, , % Total 1,161, , % 1,605, ,392, % B3-301 EIT-KIC relations 100, , % 89, , % B3-303 Monitoring and evaluation 335, , % 99, , % Total 435, , % 188, , % Total - Title 3 257,572, ,774, % 258,144, ,803, % TOTAL 262,986, ,912, % 263,558, ,352, % 588, Implementation of the commitment appropriations (C3) and payment appropriations per budget item (C2) Budget line Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Committed (2/1) Payment appropriations, EUR (3) Payments made, EUR (4) % Paid (4/3) B3-000 KIC grants 21,101, ,101, % 2,545, ,545, % Total 21,101, ,101, % 2,545, ,545, % B4-001 Cancelled appropriations for year n-1 not used in year n 9,012, % 4,520, % Total 9,012, % 4,520, % GRAND TOTAL 30,114, ,101, % 7,065, ,545, % Implementation of the commitment and payment appropriations per budget item (C4) 88

85 Budget line Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Committed (2/1) Payment Payments made, appropriations, EUR (4) EUR (3) % Paid (4/3) B3-000 KIC Grants 431, ,00 % 431, ,00 % Total 431, ,00 % 431, ,00 % Implementation of the commitment and payment appropriations per budget item (C5) Budget line Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Committed (2/1) Payment Payments made, appropriations, EUR (4) EUR (3) % Paid (4/3) B3-000 KIC Grants 263, , % 263, , % Total 263, , % 263, , % Implementation of the commitment and payment appropriations per budget item (C8) 89

86 Budget line Budget Item Description Commitment appropriations, EUR (1) Commitments made, EUR (2) % Committed (2/1) Payment appropriations, EUR (3) Payments made, EUR (4) A-1300 Mission expenses 9, , % 9, , % - % Paid (4/3) Total 9, , % 9, , % - A-1401 Medical expenses % % - A-1402 Childhood centre 11, , % 11, , % - R A L (2-4) A-1403 Social contacts % % - Total 11, , % 11, , % - A-1500 Training 33, , % 33, , % - Total 33, , % 33, , % - A-1603 IT support 14, , % 14, , % - A-1604 Administrative assistance 59, , % 59, , % - A-1611 Translation 14, , % 14, , % - Total 88, , % 88, , % - TOTAL - Title 1 142, , % 142, , % - A-2020 Water gas electricity and heating 20, , % 20, , % - A-2030 Cleaning and maintenance 6, , % 6, , % - A-2040 Security and surveillance % % - A-2006 Fitting out of premises 2, , % 2, , % - Total 28, , % 28, , % - A-2100 A-2101 Acquisition renting of equipments and software Maintenance and repair of equipments 206, , % 206, , % - 28, , % 28, , % - Total 235, , % 235, , % - A-2300 Stationery % % - A-2301 Postage and delivery charges % % - A-2302 Telecommunication charges 13, , % 13, , % - A-2303 Legal expenses and damages 15, , % 15, , % - A-2305 Bank charges % % - A-2309 Other administrative expense % % - Total 30, , % 30, , % - A-2400 Official Journal % % - A-2500 Total % % - Organisation and travel expense of Governing Board 58, , % 58, , % - meetings Total 58, , % 58, , % - Total - Title 2 353, , % 353, , % - TOTAL - Title 1 and Title 2 496, , % 496, , % - 90

87 b) List of contracts, external experts and grants awarded in 2016 List of procurement contracts and exceptional negotiated procedures The below list includes the compulsory information for publication purposes on: 1) Contracts (direct contracts, framework contracts, purchase orders) awarded by the EIT for a value between EUR and EUR (see Article 123 (4) of the Rules of Application to the Financial Regulation): Number of contract Contract type Supplies/services Name of the contractor Value of the contract Currency 01/2016/NP/EIT PROC Framework Contract Acquisition of office supplies and stationary to the European Institute of Innovation and Technology Iroda Magyarország Kft. 53, EUR 02/2016/EITPR OC Framework Contract Provision of provision of landline telecommunication services Magyar Telekom Plc. 57, EUR 03/2016/EITPR OC Framework Contract Provision of mobile telephony services Magyar Telekom Plc. 59, EUR 04/2016/NP/EIT PROC Direct Service Contract Provision of legal advice related to the establishment of a Multi- Compartment Investment Fund P+P PÖLLATH + PARTNERS Rechtsanwälte und Steuerberater mbb 37, EUR 2) Contracts (direct contracts, framework contracts, purchase orders) awarded by the EIT for a value between EUR and more (see Article 123 (4) of the Rules of Application to the Financial Regulation): Number contract of Contract type Supplies/services Name of the contractor Value of the contract Currency 07/2015/OC/EIT PROC Framework Contract Provision of interim staff services Starjobs Hungary Ltd. 360, EUR 16/2016/NP/EIT PROC Direct Service Contract Provision of Services concerning a Study and an Analysis on the Global and European Impact of the EIT Pricewaterhou secoopers EU Services EESV 133, EUR 91

88 and its KICs from 2010 to ) Aggregate amount of specific contracts and order forms based on framework contracts exceeding EUR , if their volume is above EUR (see Article 124 (4) of the Rules of Application to the Financial Regulation): Number of contract Contract type Supplies/services Name of the contractor Value of the contract Currenc y EAC/23/2011/ Lot1EAC/23/2 011/Lot1 Specific Contract under FWC Amendment no 1 to SC 835/2015/EIT (revised price) ECORYS UK LIMITED 731, EUR EAC/23/2011/ Lot2 Specific Contract under FWC Organisation of the Exco-GB meeting March 2016 Team Work SAS 38, EUR EAC/23/2011/ Lot2 Specific Contract under FWC Organisation of the 40th GB and ExCo meeting` on June 2016 Team Work SAS 39,295.4 EUR EAC/23/2011/ Lot2 Specific Contract under FWC Organisation of EIT Alumni Community Board mtgs Team Work SAS 47, EUR EAC/23/2011/ Lot2 Specific Contract under FWC Organisation of 41th GB and ExCo meeting_21-22 Sept 2016 Team Work SAS 39, EUR EAC/23/2011/ Lot2 Specific Contract under FWC Organisation of 42nd GB meeting on 16-17th November Team Work SAS 39, EUR EAC/23/2011/ Lot2 Specific Contract under FWC Organisation of GB and ExCo meeting in Dec Team Work SAS 49, EUR EAC/23/2011/ Lot2 Specific Contract under FWC Organisation of GB and ExCo meeting in Mar Team Work SAS 35, EUR 92

89 BUDG 15 PO 03 / 30-CE Specific Contract under FWC Issuing certificates on financial statements batch 3 Ernst&Young Bedrijfsrevisoren BCVBA 191, EUR BUDG 15 PO 03 / 30-CE Specific Contract under FWC Issuing certificates on financial statements batch 4 Ernst&Young Bedrijfsrevisoren BCVBA 155, EUR BUDG 15 PO 03 / 30-CE Specific Contract under FWC Issuing certificates on Financial Statement batch 1 Moore Stephens LLP 161, EUR BUDG 15 PO 03 / 30-CE Specific Contract under FWC Issuing certificates of accounts on financial statements batch 2 Moore Stephens LLP 208, EUR BUDG 15 PO 03 / 30-CE Specific Contract under FWC Ex-post control of 2015 Grant Agreements Moore Stephens LLP 147, EUR BUDG 15 PO 03 / 30-CE /00-28 Specific Contract under FWC Certification of annual accounts Mazars SA 24, EUR 38/2013/OP/E ITPROC Specific Contract under FWC SC NO.15_IT 2nd level support Grape Solutions Zrt 82, EUR 38/2013/OP/E ITPROC Specific Contract under FWC SC NO.17_Provision of KM consultant Grape Solutions Zrt 49, EUR 38/2013/OP/E ITPROC Specific Contract under FWC SC NO.18_Provision of KM consultant Grape Solutions Zrt 40, EUR 38/2013/OP/E ITPROC Specific Contract under FWC SC NO.19_IT 1st level support Grape Solutions Zrt 43, EUR 3) List of exceptional negotiated procedures in 2016: N/A 93

90 List of experts In accordance with Article 40(5) of the Horizon 2020 Rules for Participation and Article 287(5) of the rules of Application of the Financial Regulation, the below listed experts have been contracted in 2016: Name of expert Angelo Bianchi Laszlo Velikovszki Richard Tunstall Klaus Holmsberg Mihai Marius Voronca Christopher Sear Munoz Lescano Kiki Aikaterini Nicola Ciulli Volodymyr Shatokha Area ASSESMENT AND FURTHER DEVELOPMENT OF PROCUREMENT PROCEDURES OF KIC INNOENERGY ASSESMENT AND FURTHER DEVELOPMENT OF PROCUREMENT PROCEDURES OF KIC INNOENERGY EVALUATION OF THE KIC'S SELF-ASSESSMENTS FOR THE AWARD OF THE EIT LABEL FOR NEW MASTER AND DOCTOR PROGRAMMES EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION RAPPORTEUR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION ASSESSMENT OF THE IMPLEMENTATION OF THE EIT KICS EDUCATIONAL PROGRAMMES 2016 RAPPORTEUR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION Amount (EUR) 4, , , , , , , , , , Oriol Alcoba Malaspina EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION 18, Philippe Vanrie EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION 18, Jan Miller ASSESSMENT OF THE EIT'S EDUCATIONAL AGENDA 20, Hans Karlsen EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION 8,

91 Andreas Engel EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION 18, Edwin Janssen Liana Maria Ranga Richard Tunstall ASSESSMENT OF THE GRANT AGREEMENT 2015 REPORTING OF THE KICS AND ASSESSMENT OF THE 2017 BUSINESS PLANS EVALUATION OF THE KIC'S SELF-ASSESSMENTS FOR THE AWARD OF THE EIT LABEL FOR NEW MASTER AND DOCTOR PROGRAMMES EVALUATION OF THE KIC'S SELF-ASSESSMENTS FOR THE AWARD OF THE EIT LABEL FOR NEW MASTER AND DOCTOR PROGRAMMES 42, , , A.P.C. Faij EXPERT, MONITORING , Costis Kompis Marc Rosen D. De Keukeleere Edwin Janssen Yves Boisselier Massimo Mecella Lorenzo Di Gregorio Margareth Gfrerer EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION VALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION RAPPORTEUR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION EVALUATOR, EIT KICS GA 2015 REPORTING ASSESSMENT AND KICS 2017 BP EVALUATION 18, , , , , , , , Corina Pascu RAPPORTEUR SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Heikki Malinen EDU EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Thomas Ohlsson FOOD EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Rossitza Setchi VAM EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN ,

92 Guus Keder BC EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Rui Costa FOOD EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Iordanis Arzimanoglou RAPPORTEUR SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Camilla Sorensen BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Riika Irmeli Paasikivi BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Olinto Vieira BC EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Standford Blade FOOD EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Raymond Winger FOOD EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Andy Bleaden BUSINESS PLAN 2017 ASSESSMENT EXERCISE, RAPPORTEUR 6, Mervin Levin BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Frank Peck VAM EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , David Tormey VAM EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Fredrick Boer EVALUATION OF THE KIC'S SELF-ASSESSMENTS FOR THE AWARD OF THE EIT LABEL FOR NEW MASTER AND DOCTOR PROGRAMMES 13, Chiotan Cristina BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Casper Van Der Eijk BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Jean-Mark Steiler BUSINESS PLAN 2017 ASSESSMENT EXERCISE, RAPORTEUR 6, Alexandros Chatzipetros BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Jean-Luc Bessede BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Mika Aalto BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10,

93 Peter Spark BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Henning Alexander Kroll Sussane Durst Horvat Manfred Barend Van Den Meulen ASSESSMENT OF THE IMPLEMENTATION OF KNOWLEDGE TRIANGLE WITHIN THE EIT & KICS ASSESSMENT OF THE IMPLEMENTATION OF KNOWLEDGE TRIANGLE WITHIN THE EIT & KICS ASSESSMENT OF THE IMPLEMENTATION OF KNOWLEDGE TRIANGLE WITHIN THE EIT & KICS ASSESSMENT OF THE IMPLEMENTATION OF KNOWLEDGE TRIANGLE WITHIN THE EIT & KICS 13, , , , Javad Zarbakhsh VAM EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Jacob Edler ASSESSMENT OF THE IMPLEMENTATION OF KNOWLEDGE TRIANGLE INTEGRATION WITHIN THE EIT AND ITS KICS 5, Elzbieta Uzunow BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Sandra Herron-Marx BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Lena Tsipouri Stefan Kuhlmann Laszlo Velikovszki ASSESSMENT OF THE IMPLEMENTATION OF KNOWLEDGE TRIANGLE INTEGRATION WITHIN THE EIT AND ITS KICS ASSESSMENT OF THE IMPLEMENTATION OF KNOWLEDGE TRIANGLE INTEGRATION WITHIN THE EIT AND ITS KICS REVIEW OF KICS COMPLIANCE WITH THE EU PROCUREMENT DIRECTIVES AND REVISIONOF THEIR PROCUREMENT PROCEDURES 5, , , Karsen Wambach BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10, Graciela Padoani EDU EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Peter Van Der Hijden ASSESSMENT OF THE IMPLEMENTATION OF THE EIT KICS' EDUCATIONAL PROGRAMMES 21, Peter Lund IO EXPERT SUPPORTING THE EIT IN THE SELECTION OF THE NEW KICS IN , Colette Andree BUSINESS PLAN 2017 ASSESSMENT EXERCISE, EVALUATOR 10,

94 Grants awarded Name of the beneficiary city Country/ territory Co-financing rate Amount (EUR) Subject of grant Knowledge and Innovation Community CLIMATE-KIC HOLDING BV Utrecht The Netherlands 89.97% 74,450, Support the implementation of KIC added value activities (GA 2016) Knowledge and Innovation Community EIT DIGITAL Gent Belgium 77.54% 71,591, Support the implementation of KIC added value activities (GA 2016) Knowledge and Innovation Community KIC InnoEnergy SE Knowledge and Innovation Community EIT Raw Materials Knowledge and Innovation Community EIT HEALTH Eindhoven The Netherlands 89.31% 75,952, Support the implementation of KIC added value activities (GA 2016) Berlin Germany 78.27% 20,543, Support the implementation of KIC added value activities (GA 2016) München Germany 79.05% 20,706, Support the implementation of KIC added value activities (GA 2016) 98

95 Annex VII: Specific annexes related to part III a) Risk mitigating actions undertaken in 2016 Description of the risk Proposed mitigating actions Accomplished risk mitigation actions Budget cuts or legal changes beyond the EIT's control Causes: changes in political priorities by the Council, EP or Commission Consequences: insufficient budget available for the EIT to implement its objectives or adverse legal changes jeopardising the operations Continued stakeholder management to influence decisions potentially affecting the EIT. Continuous dialogue was maintained with key political decision makers (Council, EP, Commission) to have timely information about potential changes in the legal basis or in the multi-annual budget. Non-implementation of core elements of EIT Annual Work Programme 2016 due to insufficient human resources or high turnover of staff Causes: lack of resources Consequences: reputational loss, potential legal/financial implications The current staff attempts to ensure mutual back-up of all strategically important tasks. Recruitment in the HR plan for 2016 to ensure reserve lists are available. Use of interim staff and trainees. The EIT has recruited 16 new staff in 2016 thereby increasing the staff size to 59 by end Framework contract for interim staff services was concluded. Interimaires and trainees were used to bridge temporary gaps in HR capacity. 99

96 Improper implementation of EIT-KICs agreements given the complexity of the KIC concept Causes: new Framework Partnership Agreements, complex KIC governance, activities and evolving partnerships Consequences: irregularities, recovery of EIT funds; delays in implementing KICs activities; negative reactions from EC, ECA, OLAF, KICs; damage reputation/credibility of the EIT Unexpected/unforeseen legal and procedural aspects delaying successful completion of the 2016 KIC call Causes: unexpected formal or legal obstacles may arise Consequences: delay of call preparation, launch and implementation; damage to the EIT's credibility Improve the procedures (SOPs) on KIC grant management. Implement revised grant assurance strategy and EIT antifraud strategy. Review of implementation of good governance principles. Internal detailed assessments of Performance and Cost reports for the GA Assessment of certificates on the Financial Statements that are required by the EIT. Risk based ex-post audits to be performed on GA Lessons learnt and IAS audit recommendations concerning 2014 KIC call have been addressed. Planning of the process assuming two weeks contingency in case of some unexpected legal and procurement problems. Adequate operational and legal resources and external expertise allocated to the KIC call, including an independent observer. Improved SOPs for grant management procedures adopted. Revised grant assurance strategy approved and in place. Implementation of good governance principles by KICs monitored in Detailed assessment of cost and performance reports by the EIT performed, CFSs obtained. Ex-post audits carried out. All lessons learned and IAS recommendations implemented in the 2016 Call for KIC Proposals. Prudent planning of the timeline and process led to timely completion of the evaluation of proposals. Adequate resources were available throughout the evaluation process. 100

97 Insufficient interest from potential bidders to participate in the 2016 KIC call Causes: too tough requirements presented in the call, no understanding of the KIC concept among potential participants, economic crisis in the EU - reduced R&D expenditures/industrial participation Consequences: delay/cancellation of the call - need to re-publish a call, damage to the EIT's credibility To prepare and carry out a dissemination plan together with the EIT Communications Team. Preparation of dissemination package (including guidance) well in advance, use of multiplier organisations. Communication and dissemination activities carried out according to plans. IT hardware or software failure Causes: Hardware devices or software failure Consequences: Systems and services could be stopped for different periods of time Revise planning and organisation of the administrative and operational processes Causes: inappropriate time management, insufficient and inefficient processes Consequences: non-achievement of objectives or delay in the achievement, waste of time and resources Off-site back-up system in cooperation with CEPOL. IT software security review. External support for IT section. Address recommendations of the document management audit in the area of IT. Start the budgetary planning in September 2016, monthly monitoring of the budget and procurement implementation, review of the budget and procurement implementation twice per year. Off-site back-up system set up. IT security improved by acquisition of new software. External IT support (1 st and 2 nd level) available throughout Audit recommendations addressed continuously. Planning for started in August Monthly budget monitoring reports issued. Monthly procurement monitoring meetings held. Quarterly review meetings of the implementation of the AWP 2016 held. 101

98 Title: Staff involved in procurement process may not be properly qualified or familiar with relevant regulations, rules and procedures and may not be properly and consistently apply the rules Causes: staff involved in procurement process have no financial training and expertise, no follow-up of the changes in the rules, guidance Consequences: non-compliance with the legal and regulatory requirements, waste of time and resources Expenditure Life Cycle training for newcomers and staff, training on procurement, regular workshop and guidance on financial and procurement practicalities Trainings have been organised by HR. Participation in the trainings are mandatory and monitored. Feedback mechanism put in place on procurement performance. Additional capacity provided to the Procurement and Contracts section in

99 b) Specific annexes related to "Assessment of the effectiveness of the internal control systems" Standard Brief description of the action Status as of ICS 2 Ethical and Organisational Values Review EIT s ethical guidance including provisions of conflict of interest covering the EIT staff, GB members and Experts. Conflict of interest regarding the staff members: Two trainings were provided by the EIT to the EIT staff members regarding conflict of interests. The first training was focused on Ethics & Integrity at the EIT-Building an Effective Organisational Culture while the second training was conducted by the anti-fraud coordinator in the context of the OLAF Anti-fraud Strategy. Both trainings aimed to address the principles of professional ethics in the European Institutions and agencies and the main staff obligations, in particular, conflict of interests, external activities, freedom of expression and discretion, gifts and Interest groups. Briefings on the Ethical and Organisational Code of Conduct at the EIT, specially on how staff members shall avoid potential or actual conflict of interest, their obligations towards the EIT to declare external activities, as well as gifts, favours and payments from governments or any other source outside the institute, are provided by the EIT to the newcomers on ad hoc basis by the EIT Ethics officer. Several requests on prior permission for external activities have been submitted to the Appointing Authority during All the requests were carefully analysed in accordance to the provisions laid down in the Staff Regulations. In some cases, staff members were requested to provide further documents to support their request for authorisation. Staff members leaving the EIT are informed on their obligations after leaving the service. EIT former staff members are obliged to submit the declaration after leaving the service along with the job description of the new tasks assigned to their new function, should this be the case. The declaration needs to be done at least one month before the staff member leaves the EIT. This has allowed the EIT to make a proper assessment on whether the new occupational activity of the former staff member would be incompatible with the interests of the EIT or the EU. A conflict of interests assessment is also performed by the EIT regarding the declaration of absence of conflict of interest submitted by the newcomers (contract agents, temporary agents, trainees and national experts) before the signature of their contracts. 103

100 Conflict of interest regarding the Members of the EIT Governing Board: On 3 June 2015, the EIT Governing Board adopted Decision 13/2015 on the Code of Good Conduct on conflict of interests for members of the EIT Governing Board. The revised code of conduct takes into account lessons learnt from the past, best practices and findings and recommendations issued by the EIT Internal Audit Capability. It supports prompt identification and the consequent management of any actual or potential conflicts of interests. It reflects a balanced approach that aims to strengthen the decision making process by effectively handling conflicts of interest. This Code of Conduct also introduce three annual exercises on conflict of interest: Annual Declaration of Interest, Call for KICs Declaration of Interest and KIC s Business Plan Declaration of Interest. As laid down in the abovementioned Code of Good Conduct, members of the Governing Board, an annual declaration on conflict of interest was conducted by the EIT in the beginning of The ADoI for 2016 submitted by the members of the EIT Governing Board were published on the EIT website. During the 2016 ADoI exercise, the EIT contacted some members of the Governing Board regarding unclear and missing information to complete the related declaration of interests. The final assessment on the ADoI was finally produced by the EIT together with the assessment on the absence of conflict of interest of the EIT GB Members on the evaluation of the 2016 KIC proposals and 2017 KIC Business plans, completed on 3 November Members of the Governing Board were informed individually of the outcome of this ADoI assessment and of the mitigation measures adopted in case an actual or potential conflict of interest was identified. Furthermore, the EIT conducted a detailed conflict of interest verification regarding members of the EIT Governing Board for the 2017 financial allocation and for the 2016 Call for KIC proposals. Governing Board members were requested to submit their Declarations of Interest in view of the organisations that were either Partners in established KICs (and therefore subject to the 2017 financial allocation) or were participating entities in consortia applying for the 2016 Call for KIC proposals. The conflict of interest verification exercise was finalised on 3 November 2016 and appropriate mitigating measures were taken as a result of the assessment. Finally, during the EIT Governing Board meetings held in 2016, members of the Governing Board were asked to declare interests which can could be considered prejudicial to their independence with respect to the items on the agenda at the beginning of each Governing Board meeting. 104

101 ICS 4 Staff evaluation and development Implement staff performance evaluation based on annual objectives. The second appraisal and reclassification exercise for the EIT was conducted in Individual objectives of all staff members were revised and training maps for each staff member were created. Introduce career development with reclassification system. ICS 5 - Objective and performance indicators Continue development of the EIT s performance indicators in line with the KIC s performance indicators. A comprehensive review of the existing Key Performance Indicator (KPI) system used by EIT and its KICs was initiated in 2015 with the aim to promote the use of results and impact KPIs. This resulted in an agreement on 12 new EIT core KPIs to be used for the planning and reporting/monitoring of KICs activities starting in The framework for collected indicators was also adjusted to be able to satisfy the required Horizon 2020 data from the EIT and its KICs. ICS 8 Processes and procedures Complete the assessment and revision of the processes, procedures and workflows based on the covering operative and administrative activities. Several Standard Operating Procedures (SOPs) were revised and updated in 2016, including on grant management, risk management and procurement. ICS 9 Management Supervision ICS 15 Assessment of internal control standards Implement via SharePoint a consolidated action plan covering recommendations emerging from audits, risk assessments and consultations in order to facilitate management supervision. Evaluation of the implementation of the internal control system after four years of activities as partially autonomous institute to support the analysis of organisational maturity to reach full financial autonomy. Consolidation partially completed: a single audit register is now maintained covering all audit findings. Separate action plans for units are still maintained to focus on a limited set of key operational and procedural priorities. A consolidated register of strategic recommendations stemming from various evaluations and reviews will be set up in The progress in EIT s control environment and the improved maturity of the Institute s grant management and administrative processes enabled the EIT to request the partner DG (DG EAC) to re-launch the process towards full financial autonomy in July DG EAC officially launched the process in June 2016 by requesting the EIT to complete a self-assessment. The EIT submitted the completed self-assessment to the Commission in October Granting full financial autonomy by the Commission is foreseen for Q ICS 16 Internal audit capability Coordinate and agree with the IAS the multi-annual strategic audit plan. The Internal Audit Capability of the EIT has coordinated its work plan with the Internal Audit Service of the European Commission regarding the audit period. As a result, the Governing Board endorsed the IAC and IAS Strategic Internal Audit Plans on 5 March

102 Annex VIII: Final annual accounts

103 02518.EIT.2017.I.GB46 DECISION 12/2017 OF THE GOVERNING BOARD OF THE EUROPEAN INSTITUTE OF INNOVATION AND TECHNOLOGY (EIT) ON THE OPINION OF THE GOVERNING BOARD ON THE FINAL ACCOUNTS 2016 THE GOVERNING BOARD OF THE EUROPEAN INSTITUTE OF INNOVATION AND TECHNOLOGY, Having regard to Regulation (EC) No 294/2008 establishing the European Institute of Innovation and Technology 1, as amended by Regulation (EU) No 1292/2013 of the European Parliament and of the Council of 11 December , (hereinafter the EIT Regulation) and in particular, Article 21 (3) and Section 2(a) and 4.3 (j) to the Statutes annexed thereto (hereinafter the Statutes ); Having regard to Commission Delegated Regulation (EU) No 1271/2013 of 30 September 2013 on the framework financial regulation for the bodies referred to in Article 208 of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council, in particular Article ; Having regard to Decision 4 of the Governing Board of the EIT of 27 December 2013 on adopting the Financial Regulation of the European Institute of Innovation and Technology (hereinafter the Financial Regulation of the EIT ) as amended by Decision 6/ of the Governing Board of the EIT of 5 March 2015, and by Decision 11/2016 of the Governing Board of the EIT of 20 April 2016, 6 Having regard to the preliminary observations of the European Court of Auditors on the provisional annual accounts 2016 of the EIT, forwarded to the EIT Interim Director by the President of the Court of Auditors on 23 May 2017; Having regard to the final accounts drawn up by the Accounting Officer on 29 May 2017 and submitted by the EIT Interim Director to the EIT Governing Board on 8 June 2017; WHEREAS (1) The final accounts of the EIT shall be sent by 1 July 2017 together with the opinion of the Governing Board, to the account officer of the Commission, the Court of Auditors, the European Parliament and the Council, (2) The EIT s final accounts are attached as Annex I to this decision; (3) An excerpt from the final accounts shows the following information: 1 OJ L97 of , p OJ L347 of , p OJ L 328, , p EIT.2014.I EIT.2015.I.GB EIT.GB.2016.WP 1